ACCOUNTING POLICIES

Our consolidated financial statements are based on the selection and application of accounting policies which require us to make significant estimates and assumptions. We believe that the following accounting policies which may involve a higher degree of judgment and complexity in their application, represent our critical accounting policies.

Critical accounting policies

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net identifiable assets of businesses acquired. Goodwill is not amortized but rather is assessed for impairment annually or more frequently if circumstances change, on the basis of its fair value. Fair value is determined using discounted expected future cash flows.

Intangibles

Intangibles are recorded at cost. Intangibles with finite lives are amortized as follows:

Change in accounting policies

Stock-based compensation plan

Effective August 1, 2003, we adopted the recommendations of CICA Handbook Section 3870 Stock-Based Compensation and Other Stock-Based Payments. The standard requires recognition of compensation awards granted to employees and others. The standard was applied to awards granted on or after January 1, 2003.

In 2003, we chose not to use the fair value method to account for stock options issued to employees under YPG's stock option program. No compensation expense was recognized for this plan when stock options were granted to employees. Any consideration paid by employees on exercise of stock options is credited to partner's equity in YPG.

Effective January 1, 2004, we adopted the amendment to CICA Handbook Section 3870 Stock-Based Compensation and Other Stock-Based Payments. The amendment, issued in November 2003, requires the expensing of all stock-based compensation awards for fiscal years beginning on or after January 1, 2004, using the fair value method. We have chosen to adopt the amendment using the retroactive without restatement transitional alternative as permitted by the standard. The cumulative effect of adopting the new accounting policy on the opening accumulated earnings is $0.3 million.

Impairment of long-lived assets

Effective January 1, 2004, we adopted Section 3063 of the CICA Handbook, Impairment of long-lived assets. An impairment loss is recognized on a long-lived asset to be held and used when its carrying value exceeds the total undiscounted cash flows expected from its use and disposition. The impairment loss is calculated by deducting the fair value of the asset from its carrying value. The adoption of this standard did not have any impact on the financial statements.

Hedging relationships

As at January 1, 2004, we adopted Accounting Guideline - 13, Hedging Relationships (“ACG-13”). The guideline applies to all existing and new hedging relationships and provides additional documentation and designation requirements for hedge accounting and requires regular and periodic assessment of effectiveness. Hedge accounting is to be discontinued for any hedging relationships that do not meet the requirements of the guideline. The adoption of this guideline did not have any impact on the financial statements.

Recent accounting pronouncements

Variable interest entities

The CICA has issued a guideline on accounting for variable interest entities (VIEs) titled Accounting Guideline - 15 Consolidation of Variable Interest Entities (“AcG-15”), which proposes amendments to the guideline to harmonize with corresponding guidance in the United States. A VIE is any type of legal structure not controlled by voting equity but rather by/or through contractual or other financial agreements. This guideline requires us to identify VIEs in which we have an interest, determine whether we are the primary beneficiary of such entities, and, if so, to consolidate the VIE. A primary beneficiary is an enterprise that will absorb a majority of the VIE's expected losses, receive a majority of its expected residual return, or both.

AcG-15 is effective for fiscal periods beginning on or after November 1, 2004, and early adoption is encouraged. We will be adopting this standard in fiscal 2005. We conducted a review of the ownership and contractual interest in entities and determined that the adoption of this guideline will not have any impact on our financial statements.

Critical accounting estimates

The preparation of financial statements in conformity with Canadian GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the financial statements. We constantly evaluate these estimates and assumptions.

We base our estimates and assumptions on past experience and other factors that are deemed reasonable under the circumstances. This involves varying degrees of judgment and uncertainty, thus the amounts currently reported in the financial statements could prove to be inaccurate in the future.

Intangibles

Identified intangibles acquired were evaluated on the basis of their fair value based on independent or internal valuations. Certain information inputs in respect to the valuations were based on management's assumptions. Key assumptions used included projected revenues and EBITDA, anticipated market share and projected renewal rates.

Allowance for doubtful accounts

We expect that a certain portion of required customer payments will not be made and maintain an allowance for these doubtful accounts. This allowance is based on our estimation of the likelihood of recovering our accounts receivable. It incorporates current and expected collection trends. If economic conditions change, actual results or specific industry trends differ from our expectations, we will adjust our allowance for doubtful accounts and our bad debt expense accordingly. In addition, Bell Canada provides us with customer collection services with respect to advertisers who are also Bell Canada's customers. We rely on information provided by Bell Canada in determining the portion of required customer payments that will not be made and we maintain an allowance for those accounts.

Employee future benefits

The accrued benefit obligation is determined by independent actuaries using the projected benefit method prorated on service and is based on management's best economic and demographic estimates. These benefits relate to YPG's defined benefit plans. The expected return on plan assets is determined by considering long-term historical returns, future estimates of long-term investments returns and assets allocation.