NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B) BASIS FOR PRESENTATION C) USE OF MANAGEMENT CRITICAL JUDGMENTS, ESTIMATES, AND ASSUMPTIONS Management critical judgments Management estimates and assumptions EMPLOYEE BENEFITS LEASE FUNCTIONAL CURRENCY These consolidated financial statements have been prepared on the historical cost basis. All transactions are recorded on an accrual basis. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Ceapro Technology Inc., Ceapro Veterinary Products Inc., Ceapro Active Ingredients Inc., Ceapro BioEnergy Inc., Ceapro (P.E.I) Inc., and Ceapro USA Inc. All intercompany accounts and transactions have been eliminated on consolidation. The preparation of consolidated financial statements requires management to make critical judgments, estimates, and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses recorded during the reporting period. In making estimates and judgments, management relies on external information and observable conditions where possible, supplemented by internal analysis as required. Actual results may differ from those estimates. Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Policies that are critical for the presentation of the financial position and financial performance of the Company and that require judgments are discussed below. The functional currency for the Company and each of the Company’s subsidiaries is the currency of the primary economic environment in which the respective entity operates; the Company has determined the functional currency of each entity to be the Canadian dollar. Such determination involves certain judgments to identify the primary economic environment. The Company reconsiders the functional currency of its subsidiaries if there is a change in events and/or conditions which determine the primary economic environment. Management considers all leases as operational. In making their judgment, management considered the detailed criteria for the capital lease recognition set out in IAS 17  Lease  and, in particular, whether the Company had transferred substantially all the risks and rewards incidental to ownership. Policies that are critical for the presentation of the financial position and financial performance of the Company and that require estimates and assumptions are discussed below. The Company has an unfunded post-employment defined benefit pension plan. The liability for this plan is presented in the balance sheet of the Company. The costs related to this pension plan are included in profit or loss. The critical assumption used to determine the Company’s obligation is the discount rate applied to the obligation. Management determines the appropriate discount rate at the end of each year by considering the interest rate of high quality corporate bonds that have terms to maturity approximating the terms of the obligation. 32 CEAPRO Annual Report 2012