M ANAGEMENT S DISCUSSION AND ANALYSIS continued 26 Orbit G arant 2012 annual rep O rt Provisions Provisions are recognized when i the Company has a present legal or constructive obligation as a result of a past event and i t is probable that an outfow of economic benefts will be required to settle the obligation and when ii the amount of the obligation c an be reliably estimated Provisions are reviewed at each balance sheet date and changes in estimates are refected in the consolidated statement of earni ngs in the reporting period in which changes occur Contingent considerations The fair value recognized for contingent considerations has been estimated by Management based on the subsidiaries results and budget However the actual contingent considerations may vary due to unexpected changes in the subsidiaries activities Stock options The Company uses the fair value method to account for stock options In accordance with this method compensation cost is meas ured at the fair value of the option at the grant date using the BlackScholes option pricing model which is based on signifcant assumptions such as volatility dividend yield and expected term Functional currency The Company applied judgment in determining the functional currency of the Company and its subsidiaries Functional currency was determined based on the currency that mainly infuences sales prices labour materials and other costs of providing services RECENT ACCOUNTING PRONOUNCEMENTS The Company has not early adopted the following new standards and adoption impacts on the consolidated fnancial statements have not yet been determined IFRS 9 Financial Instruments IFRS 9 simplifes the measurement and classifcation for fnancial assets by reducing the number of measurement categories and removing complex ruledriven embedded derivative guidance in IAS 39 Financial Instruments Recognition and Measurement The new s tandard also provides for a fair value option in the designation of a nonderivative fnancial instruments and its related classifcati on and measurement IFRS 9 is effective from periods beginning January 1 2015 with early adoption permitted IFRS 10 Consolidated Financial Statements IFRS 10 replaces SIC12 Consolidation Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements and provides additional guidance regarding the concept of control as the determining factor in whether an entity should be incl uded within the consolidated fnancial statements of the parent company IFRS 10 is effective from periods beginning January 1 2013 wi th early adoption permitted IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures with guidance that foc uses on the rights and obligations of the arrangement rather than its legal form It also withdraws the option to proportionately consolidate an entitys interests in joint ventures The new standard requires that such interests be recognized using the equity method IFRS 11 is effective from periods beginning January 1 2013 with early adoption permitted IFRS 12 Disclosure of Interests in Other Entities IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities includi ng joint arrangements associates special purpose entities and other off balance sheet vehicles IFRS 12 is effective from periods begi nning January 1 2013 with early adoption permitted IFRS 13 Fair Value Measurements IFRS 13 defnes fair value requires the disclosure of estimates at fair value and provides guidance on measuring fair val ue when required or permitted to do so according to the IFRS standards IFRS 13 is effective from periods beginning January 1 2013 with early adoption permitted