Notes to Consolidated Financial Statements

1. Description of TransCanada's Business
2. Accounting Policies
3. Accounting Changes
4. Segmented Information
5. Plant, Property and Equipment
6. Goodwill
7. Rate-Regulated Businesses
8. Joint Venture Investments
9. Intangibles and Other Assets
10. Notes Payable
11. Deferred Amounts
12. Income Taxes
13. Long-Term Debt
14. Long-Term Debt of Joint Ventures
15. Junior Subordinated Notes
16. Non-Controlling Interests
17. Common Shares
18. Preferred Shares
19. Asset Retirement Obligations
20. Employee Future Benefits
21. Risk Management and Financial Instruments
22. Changes in Operating Working Capital
23. Acquisitions and Dispositions
24. Commitments, Contingencies and Guarantees
25. United States Accounting Principles and Reporting

Note 3: Accounting Changes

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Changes in Accounting Policies for 2011

Business Combinations

Effective January 1, 2011, the Company adopted CICA Handbook Section 1582 "Business Combinations", which is effective for business combinations with an acquisition date after January 1, 2011. This standard was amended to require additional use of fair value measurements, recognition of additional assets and liabilities, expensing of acquisition costs, and increased disclosure. Adoption of this standard had no effect on the financial statements as at and for the year ended December 31, 2011.

Consolidated Financial Statements and Non-Controlling Interests

Entities adopting Section 1582 were also required to adopt CICA Handbook Sections 1601 "Consolidated Financial Statements" and 1602 "Non-Controlling Interests". Sections 1601 and 1602 require Non-Controlling Interests to be presented as part of Equity on the balance sheet. In addition, the income statement of the controlling parent now includes 100 per cent of the subsidiary's results and presents the allocation of net income between the controlling and non-controlling interests. Changes resulting from the adoption of Sections 1601 and 1602 were applied retrospectively.

Future Accounting Changes

United States Generally Accepted Accounting Principles

The CICA's Accounting Standards Board (AcSB) previously announced that Canadian publicly accountable enterprises were required to adopt International Financial Reporting Standards (IFRS) effective January 1, 2011, with the exception of certain qualifying entities historically using RRA that were given a one year deferral from adopting IFRS. TransCanada is a qualifying entity for these purposes and has deferred the adoption of IFRS. The Company has prepared its consolidated financial statements for 2011 in accordance with CGAAP in order to continue using RRA.

In the application of CGAAP, TransCanada follows specific accounting guidance under United States generally accepted accounting principles (U.S. GAAP) unique to rate-regulated businesses. These RRA standards allow the timing of recognition of certain revenues and expenses to differ from the timing that may otherwise be expected in a non-rate-regulated business under CGAAP in order to appropriately reflect the economic impact of regulators' decisions regarding the Company's revenues and tolls. The International Accounting Standards Board has concluded that the development of RRA under IFRS requires further analysis and TransCanada does not expect a final RRA standard under IFRS to be effective in the foreseeable future.

As a registrant with the U.S. Securities and Exchange Commission, TransCanada has the option under Canadian disclosure rules to prepare and file its consolidated financial statements using U.S. GAAP. As a result of the developments noted above, the Company's Board of Directors has approved the adoption of U.S. GAAP effective January 1, 2012. The financial reporting impact of TransCanada adopting U.S. GAAP is disclosed in Note 25 "United States Accounting Principles and Reporting". The differences between CGAAP and U.S. GAAP are consistent with those reported by the Company in its annual "Reconciliation to United States GAAP" as filed in prior years. Significant changes to existing systems and processes are not required to implement U.S. GAAP as the Company's primary accounting framework.

Fair Value Measurement

In May 2011, the Financial Accounting Standards Board (FASB) issued amended guidance on fair value measurements, which updated some of the existing measurement guidance and included enhanced disclosure requirements under U.S. GAAP. This guidance is effective for interim and annual periods beginning after December 15, 2011. Adoption of these amendments is expected to result in an increase in the qualitative and quantitative disclosures regarding Level 3 measurements, however, the Company expects no material effect on the financial statements.

Intangibles – Goodwill and Other

In September 2011, the FASB issued new guidance on testing goodwill for impairment which simplifies an entity's testing for goodwill impairment under U.S. GAAP by permitting an entity to first assess qualitative factors affecting the fair value of a reporting unit in comparison to the carrying amount, as a basis for determining whether it is required to proceed to the two-step quantitative goodwill impairment test. This guidance is effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption is not expected to impact the financial statements.

Balance Sheet Offsetting/Netting

In December 2011, the FASB issued amended guidance to enhance disclosures that will enable users of the financial statements to evaluate the effect, or potential effect, of netting arrangements on an entity's financial position. The amendments result in enhanced disclosures by requiring additional information regarding financial instruments and derivative instruments that are either offset in accordance with current U.S. GAAP or subject to an enforceable master netting agreement. This guidance is effective for annual periods beginning on or after January 1, 2013. Adoption of these amendments is expected to result in an increase in disclosures regarding financial instruments which are subject to offsetting as described in this amendment.