REPORTS ON FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH NATIONAL INSTRUMENT 52-107

Introduction

On October 1, 2010, the Canadian Securities Administrators published
National Instrument 52-107 Acceptable Accounting Principles and Auditing
Standards to reflect new requirements when preparing financial statements,
financial information, operating statements and pro forma financial
statements for periods relating to financial years beginning on or after
January 1, 2011.

4(a) Financial Statements of a Registrant Prepared in Accordance with
National Instrument 52-107, subsection 3.2(4) — Auditor’s Report

• The financial statements are for the year ended December 31,
2011 to comply with the securities regulatory requirements for
registrants, and comparative information is not presented.
• Registrants are required to prepare financial statements in
accordance with paragraph 3.2(3)(a) of National Instrument
52-107. For periods relating to a fiscal year beginning in 2011,
section 3.2 permits registrants to prepare financial statements
in accordance with either paragraph 3.2(3)(a) or subsection
3.2(4). The entity has chosen to prepare financial statements in
accordance with subsection 3.2(4). (Refer to Illustrative Report
4(b) for an auditor’s report on financial statements prepared in
accordance with paragraph 3.2(3)(a).)
• The entity prepared annual financial statements that comply with
the financial reporting framework prescribed by subsection 3.2(4)
of National Instrument 52-107 for financial statements delivered
by registrants.
• The financial reporting framework requires the financial
statements to:
(i) be prepared in accordance with Canadian GAAP applicable to
publicly accountable enterprises, except that any investments
in subsidiaries, jointly controlled entities and associates must
be accounted for as specified for separate financial statements
in International Accounting Standard 27;
(ii) exclude comparative information relating to the preceding
year; and
(iii) use the first day of the financial year to which the financial
statements relates as the date of transition to the financial
reporting framework.
• The financial statements describe the financial reporting
framework by reference to subsection 3.2(4) of National
Instrument 52-107.
• The audit is conducted in accordance with Canadian Auditing
Standards.
• An Emphasis of Matter paragraph is required. Use of the auditor’s
report is restricted but distribution of the auditor’s report is not
restricted. Other choices are permitted. (Refer to Q&A 2(b) in this
Guide for the permitted choices.)
(Please read Introduction to Illustrative Reports)
1. These financial statements are not prepared for filing with
securities regulators as part of the continuous disclosure
obligations of a reporting issuer. Rather, they must be delivered to
the securities regulators using the financial reporting framework
prescribed by the regulators in order to meet the specific needs
of those regulators (“special purpose framework”). Financial
statements prepared in accordance with a special purpose
framework are special purpose financial statements. Accordingly,
the special considerations of CAS 800, Special Considerations
— Audits of Financial Statements Prepared in Accordance with
Special Purpose Frameworks, apply.
2. One of the considerations in forming an opinion on financial
statements is whether the financial statements adequately refer
to or describe the applicable financial reporting framework. In this
case, the financial reporting framework is described by reference to
National Instrument 52-107.
3. Paragraph A6 of CAS 800 indicates that the applicable financial
reporting framework may encompass the financial reporting
standards established by an organization that is authorized or
recognized to promulgate standards for special purpose financial
statements. In that case, those standards will be presumed to
be acceptable for that purpose if the organization follows an
established and transparent process involving deliberation and
consideration of the views of relevant stakeholders.
4. It has been assumed that this is a fair presentation framework.
(Refer to Q&A 2(d) in this Guide for guidance with respect to fair
presentation and compliance frameworks.)
INDEPENDENT AUDITOR'S REPORT
[Directors of ABC Company]
We have audited the accompanying financial statements of ABC
Company, which comprise the statements of financial position
as at December 31, 2011 and January 1, 2011, and the statements
of comprehensive income, statements of changes in equity and
statements of cash flows for the year ended December 31, 2011, and
a summary of significant accounting policies and other explanatory
information. The financial statements have been prepared by
management to meet the requirements of National Instrument 31-103
Registration Requirements and Exemptions, based on the financial
reporting framework specified in subsection 3.2(4) of National
Instrument 52-107 Acceptable Accounting Principles and Auditing
Standards for financial statements delivered by registrants.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of
these financial statements in accordance with the financial reporting
framework specified in subsection 3.2(4) of National Instrument 52-107
Acceptable Accounting Principles and Auditing Standards for financial
statements delivered by registrants, and for such internal control as
management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity's preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of ABC Company as at December 31,
2011 and January 1, 2011, and its financial performance and its cash
flows for the year ended December 31, 2011 in accordance with the
financial reporting framework specified in subsection 3.2(4) of National
Instrument 52-107 Acceptable Accounting Principles and Auditing
Standards for financial statements delivered by registrants.
Basis of Accounting and Restriction on Use
Without modifying our opinion, we draw attention to Note X to the
financial statements, which describes the basis of accounting. The
financial statements are prepared to assist ABC Company to meet the
requirements of National Instrument 31-103 Registration Requirements
and Exemptions. As a result, the financial statements may not be
suitable for another purpose. Our report is intended solely for the
Directors of ABC Company and Regulator DEF, and should not be used
by parties other than the Directors of ABC Company or Regulator DEF.
[Auditor's signature]
[Date of the auditor's report]
[Auditor's address]

4(b) Financial Statements of a Registrant Prepared in Accordance with
National Instrument 52-107, paragraph 3.2(3)(a) — Auditor’s Report

• The financial statements are for the year ended December 31,
2011 to comply with the securities regulatory requirements for
registrants, and comparative information is presented.
• Registrants are required to prepare financial statements in
accordance with paragraph 3.2(3)(a) of National Instrument
52-107. For periods relating to a fiscal year beginning in 2011,
section 3.2 permits registrants to prepare financial statements
in accordance with either paragraph 3.2(3)(a) or subsection
3.2(4). The entity has chosen to prepare financial statements in
accordance with paragraph 3.2(3)(a). (Refer to Illustrative Report
4(a) for an auditor’s report on financial statements prepared in
accordance with subsection 3.2(4).)
• The entity prepared annual financial statements that comply
with the financial reporting framework prescribed by paragraph
3.2(3)(a) of National Instrument 52-107 for financial statements
delivered by registrants. The framework requires the financial
statements to be prepared in accordance with Canadian GAAP
applicable to publicly accountable enterprises, except that
any investments in subsidiaries, jointly controlled entities and
associates must be accounted for as specified for separate
financial statements in IAS 27 Consolidated and Separate
Financial Statements.
• The financial statements describe the financial reporting
framework by reference to paragraph 3.2(3)(a) of National
Instrument 52-107.
• The audit is conducted in accordance with Canadian Auditing
Standards.
• An Emphasis of Matter paragraph is required. Use of the auditor’s
report is restricted but distribution of the auditor’s report is not
restricted. Other choices are permitted. (Refer to Q&A 2(b) in this
Guide for the permitted choices.)
(Please read Introduction to Illustrative Reports)
1. These financial statements are not prepared for filing with
securities regulators as part of the continuous disclosure
obligations of a reporting issuer. Rather, they must be delivered to
the securities regulators using the financial reporting framework
prescribed by the regulators in order to meet the specific needs
of those regulators (“special purpose framework”). Financial
statements prepared in accordance with a special purpose
framework are special purpose financial statements. Accordingly,
the special considerations of CAS 800, Special Considerations
— Audits of Financial Statements Prepared in Accordance with
Special Purpose Frameworks, apply.
2. One of the considerations in forming an opinion on financial
statements is whether the financial statements adequately refer
to or describe the applicable financial reporting framework. In this
case, the financial reporting framework is described by reference to
National Instrument 52-107.
3. Paragraph A6 of CAS 800 indicates that the applicable financial
reporting framework may encompass the financial reporting
standards established by an organization that is authorized or
recognized to promulgate standards for special purpose financial
statements. In that case, those standards will be presumed to
be acceptable for that purpose if the organization follows an
established and transparent process involving deliberation and
consideration of the views of relevant stakeholders.
4. It has been assumed that this is a fair presentation framework.
(Refer to Q&A 2(d) in this Guide for guidance with respect to fair
presentation and compliance frameworks.)
INDEPENDENT AUDITOR'S REPORT
[Directors of ABC Company]
We have audited the accompanying financial statements of ABC
Company, which comprise the statements of financial position as at
December 31, 2011, December 31, 2010 and January 1, 2010, and the
statements of comprehensive income, statements of changes in equity
and statements of cash flows for the years ended December 31, 2011
and December 31, 2010, and a summary of significant accounting
policies and other explanatory information. The financial statements
have been prepared by management to meet the requirements of
National Instrument 31-103 Registration Requirements and Exemptions,
based on the financial reporting framework specified in paragraph
3.2(3)(a) of National Instrument 52-107 Acceptable Accounting
Principles and Auditing Standards for financial statements delivered by
registrants.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of
these financial statements in accordance with the financial reporting
framework specified in paragraph 3.2(3)(a) of National Instrument
52-107 Acceptable Accounting Principles and Auditing Standards
for financial statements delivered by registrants, and for such
internal control as management determines is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity's preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of ABC Company as at December
31, 2011, December 31, 2010 and January 1, 2010, and its financial
performance and its cash flows for the years ended December 31, 2011
and December 31, 2010 in accordance with the financial reporting
framework specified in paragraph 3.2(3)(a) of National Instrument
52-107 Acceptable Accounting Principles and Auditing Standards for
financial statements delivered by registrants.
Basis of Accounting and Restriction on Use
Without modifying our opinion, we draw attention to Note X to the
financial statements, which describes the basis of accounting. The
financial statements are prepared to assist ABC Company to meet the
requirements of National Instrument 31-103 Registration Requirements
and Exemptions. As a result, the financial statements may not be
suitable for another purpose. Our report is intended solely for the
Directors of ABC Company and Regulator DEF, and should not be used
by parties other than the Directors of ABC Company or Regulator DEF.
[Auditor's signature]
[Date of the auditor's report]
[Auditor's address]

4(c) Acquisition Statement for an Oil and Gas Property Prepared in
Accordance with National Instrument 52-107, subsection 3.11(5) —
Auditor’s Report

• Company DEF acquired the oil and gas property ABC.
• DEF must file a business acquisition report with securities
regulators.
• Management of DEF prepared the operating statement of ABC for
the years ended December 31, 2011 and December 31, 2010.
• The financial reporting framework is prescribed by subsection
3.11(5) of National Instrument 52-107 for operating statements of
acquired oil and gas properties.
• The financial reporting framework requires the operating
statement to:
(i) include line items for at least gross revenue, royalty expenses,
production costs and operating income; and
(ii) for each line use accounting policies permitted by one
of Canadian GAAP applicable to publicly accountable
enterprises, IFRSs, US GAAP or Canadian GAAP applicable
to private enterprises, and would apply to those line items if
those line items were presented as part of a complete set of
financial statements.
• The operating statement describes the financial reporting
framework, by reference to subsection 3.11(5) of National
Instrument 52-107, and the accounting policies used to prepare
the operating statement.
• The auditor’s report refers to the most recently completed
financial period presented.
• The audit is conducted in accordance with Canadian Auditing
Standards.
(Please read Introduction to Illustrative Reports)
1. The financial reporting framework has been designed by the
securities regulators to meet the common information needs of
a broad range of users (“general purpose framework”). Financial
statements prepared in accordance with a general purpose
framework are general purpose financial statements. However,
the securities regulators have determined that users do not need
a complete set of financial statements to meet their information
needs. Accordingly, CAS 805, Special Considerations — Audits of
Single Financial Statements and Specific Elements, Accounts or
Items of a Financial Statement applies, and the form of report is
based on CAS 700, Forming an Opinion and Reporting on Financial
Statements.
2. One of the considerations in forming an opinion on financial
statements is whether the financial statements adequately refer
to or describe the applicable financial reporting framework. In this
case, the financial reporting framework is described by reference to
National Instrument 52-107.
3. Paragraph 8 of CAS 805 requires the auditor to determine the
acceptability of the financial reporting framework, including
whether application of the financial reporting framework will result
in a presentation that provides adequate disclosures to enable
the intended users to understand the information conveyed in the
financial statement, and the effect of material transactions and
events on the information conveyed in the financial statement.
4. Because the comparative operating statement is unaudited, the
auditor is required by paragraph 14 of CAS 710, Comparative
Information — Corresponding Figures and Comparative Financial
Statements, to include an Other Matter paragraph stating that the
comparative operating statement is unaudited.
5. It has been assumed that this is a compliance framework. (Refer
to Q&A 2(d) in this Guide for guidance with respect to fair
presentation and compliance frameworks.)
INDEPENDENT AUDITOR'S REPORT
[Directors of DEF Company]
We have audited the accompanying operating statement containing
gross revenues, royalty expenses, production costs and operating
income of ABC for the year ended December 31, 2011, and a summary
of significant accounting policies and other explanatory information
(together "the operating statement").
Management's Responsibility for the Operating Statement
Management of DEF Company is responsible for the preparation of this
operating statement of ABC in accordance with the financial reporting
framework specified in subsection 3.11(5) of National Instrument 52-
107 Acceptable Accounting Principles and Auditing Standards for
operating statements of an acquired oil and gas property, and for such
internal control as management determines is necessary to enable
the preparation of the operating statement that is free from material
misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the operating statement
based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the operating
statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the operating statement. The
procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the operating
statement, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity's preparation of the operating statement in order to design audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting
estimates, if any, made by management, as well as evaluating the
overall presentation of the operating statement.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the operating statement of ABC for the year ended
December 31, 2011 is prepared, in all material respects, in accordance
with the financial reporting framework specified in subsection 3.11(5)
of National Instrument 52-107 Acceptable Accounting Principles and
Auditing Standards for operating statements of an acquired oil and gas
property.
Other Matter
The operating statement of ABC for the year ended December 31, 2010,
is unaudited.
[Auditor's signature]
[Date of the auditor's report]
[Auditor's address]

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