Algonquin Power & Utilities Corp. – Consolidated Financial Statements ALGONQUIN POWER & UTILITIES CORP.  Notes to the Consolidated Financial Statements  December 31, 2012 and 2011   (in thousands of Canadian dollars except as noted and amounts per share)  Liabilities for loss contingencies arising from environmental remediation, claims, assessments, litigation, fines, and penalties and other sources are recorded when it is  probable that a liability has been incurred and the amount can be reasonably estimated.  Legal costs incurred in connection with loss contingencies are expensed as incurred. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of  contingent assets and liabilities at the date of these financial statements and the reported  amounts of revenue and expenses during the year. Actual results could differ from those  estimates. During the years presented, management has made a number of estimates and  valuation assumptions, including the useful lives and recoverability of property, plant and  equipment and intangible assets, the annual impairment testing of reporting units containing  goodwill, the recoverability of notes receivable and long-term investments, the recoverability of  deferred tax assets, assessments of unbilled revenue, pension and OPEB obligations,  contingencies related to environmental matters, and the fair value of financial instruments,  derivatives and share-based compensation. These estimates and valuation assumptions are  based on present conditions and management’s planned course of action, as well as  assumptions about future business and economic conditions. Should the underlying valuation  assumptions and estimates change, the recorded amounts could change by a material amount. (aa) Use of estimates  (z) Commitments and contingencies  1.  Significant accounting policies (continued) 2012 Annual Report 89