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15. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These consolidated financial statements have been prepared in accordance with Canadian GAAP, which, in most respects, conform to the United States Generally Accepted Accounting Principles. The material items are described below:

	Reconciling
3 months ended March 31	items		2007			2006
Net earnings - Canadian GAAP		$	66.0		$	69.2
Start-up costs, net of tax	V		-			(0.1	)
Amortization of pension transition adjustment, net of tax	III		(1.1	)		(1.0	)
Net earnings - U.S. GAAP		$	64.9		$	68.1
Other comprehensive loss - Canadian GAAP		$	(83.2	)	$	-
Foreign currency cumulative translation adjustment			-			(20.5	)
Net gain on derivative instruments			-			151.9
Comprehensive loss - U.S. GAAP		$	(18.3	)	$	199.5
Basic and diluted EPS - U.S. GAAP
Earnings from continuing operations		$	0.32		$	0.35
Net earnings		$	0.32		$	0.35

		March 31, 2007¹				Dec. 31, 2006
						Restated
	Reconciling	Canadian				Canadian	U.S.
	items	GAAP		U.S. GAAP		GAAP	GAAP
Assets
Property, plant and equipment, net	V	4,994.5		4,991.5		5,041.9	5,038.7
Other assets (including current portion)	V	95.7		90.8		88.2	34.2
Liabilities
Deferred credits and other liabilities (including current portion)	III,VI	440.8		497.3		474.0	508.0
Net Future or deferred income tax liabilities (including current portion)	III, V,VI	266.0		267.6		398.7	286.2
Equity
Contributed surplus	II	-		133.0		-	133.0
Retained earnings	II, III, V	725.3		567.0		710.0	552.7
Accumulated other comprehensive loss	VI	(325.0	)	(365.7	)	-	(293.1	)

¹ Material 2007 balances presented with their 2006 comparatives. For a complete list of 2006 variances please see TransAlta's 2006 annual report.

On Jan. 1, 2007, TransAlta adopted four new accounting standards that were issued by the CICA: Section 1530,

Comprehensive Income, Section 3855, Financial Instruments – Recognition and Measurement, Section 3861, Financial Instruments – Disclosure and Presentation, and Section 3865, Hedges. We adopted these standards retroactively with an adjustment of opening AOCI.

Future income taxes under Canadian GAAP are referred to as deferred income taxes under U.S. GAAP.

As at		Mar. 31, 2007		Dec. 31, 2006
Future income tax liabilities (net) under Canadian GAAP	$	(266.0	)	(398.7	)
Derivatives		-		121.6
Start-up costs		(2.3	)	(2.3	)
Pensions		0.7		(6.8	)
	$	(267.6	)	(286.2	)
Comprised of the following:
As at		Mar. 31, 2007		Dec. 31, 2006
Current deferred income tax assets	$	55.4		25.8
Long-term deferred income tax assets		349.0		294.0
Current deferred income tax liabilities		(19.8	)	(19.9	)
Long-term deferred income tax liabilities		(652.2	)	(586.1	)
	$	(267.6	)	(286.2	)

In 1998, the corporation transferred generation assets to one of its subsidiaries TA Cogen. TA Power, an unrelated entity, concurrently subscribed to a minority interest in TA Cogen. The fair value paid by TA Cogen for the assets exceeded their historical carrying values. For Canadian GAAP, the corporation recognized a portion of this difference, to the extent it was funded by TA Power’s investment in TA Cogen, as a gain on disposition. As TA Power held an option to resell their interest in TA Cogen to the corporation in 2018, TA Power’s option to resell these units was eliminated and the unamortized balance of the gain was recognized in income.

Under U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 51, the option initially held by TA Power to potentially resell TA Cogen units to the corporation in 2018 causes the excess of the consideration paid by TA Power over the corporation’s historical carrying value in these assets to be characterized as contributed surplus in 1998. This amount of contributed surplus is reduced by the related tax effect. As a result, under U.S. GAAP, there is no amortization of the gain into income in the period from 1998 to 2002 and no recognition of the unamortized balance of the gain in 2003.

As a result, $133.0 million has been reclassified from retained earnings to contributed surplus.

U.S. GAAP requires that the cost of employee pension benefits be determined using the accrual method with application from 1989. It was not feasible to apply this standard using this effective date. The transition asset as at Jan. 1, 1998 was determined in accordance with elected practice prescribed by the SEC and is amortized over 10 years.

In accordance with Canadian GAAP, joint ventures are required to be proportionately consolidated regardless of the legal form of the entity. Under U.S. GAAP, incorporated joint ventures are required to be accounted for by the equity method. However, in accordance with practices prescribed by the SEC, the corporation, as a foreign private issuer, has elected for

the purpose of this reconciliation to account for incorporated joint ventures by the proportionate consolidation method.

Under U.S. GAAP, certain start-up costs, including revenues and expenses in the pre-operating period, are expensed rather than capitalized to deferred charges and property, plant and equipment as under Canadian GAAP. This results in decreased depreciation and amortization expense under U.S. GAAP.

In 2006 TransAlta adopted Statement of Financial Accounting Standards (SFAS) No. 158 (SFAS 158), Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS 158 requires the cumulative impact of adopting this change in accounting principle to be charged to the opening balance of Accumulated Other Comprehensive Income (“AOCI”). For the year ended Dec. 31, 2006, TransAlta recorded this as a charge to Other Comprehensive Income (“OCI”) during the period ended Dec. 31, 2006, in the amount of $40.7 million, rather than to the opening balance of AOCI for the same amount. AOCI as at Dec. 31, 2006 is not impacted by this change.

This amount is also included in the US GAAP net earnings reconciliation. After correcting this treatment, US GAAP net earnings and earnings per share should be $40.4 million and $0.20 per share, versus reported net losses of $0.3 million and $nil per share.

In the first quarter of 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (Fin 48). Total amount of unrecognized tax benefits as of the date of adoption is $113 million which includes $9 million of accrued interest. There is no change to the amount of unrecognized tax benefits from the adoption of this standard. No material change occurred during the first quarter of 2007 and no material increase or decrease is expected within the next 12 months.

TransAlta’s accounting policy is to treat interest and penalties relating to unrecognized tax benefits as a component of income taxes.

The company is working with various tax authorities to resolve 1997 to 2000 appeals issues. 2001 to 2006 taxation years are open for audit examination. We do not anticipate any material impact to the financial statements from the resolution or settlement of these tax matters. However, actual settlements may differ from the amounts reserved.

On Jan. 1, 2007, we adopted FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statement No. 133 and 140 (“FAS 155”). FAS 155 allows an entity to measure any hybrid financial instrument that contains an embedded derivative that requires bifurcation at its fair value, with changes in fair value recognized in earnings. The adoption of this U.S. accounting standard did not have a material impact upon our consolidated financial position or results of operations.

On Sept. 15, 2006, FASB issued Statement No. 157, Fair Value Measurements (“FAS 157”), which establishes a framework for

measuring fair value in U.S. GAAP, and is applicable to other accounting pronouncements where fair value is considered to be the relevant measurement attribute. FAS 157 also expands disclosures about fair value measurements and will be effective for us on Jan. 1, 2008.

On Feb. 15, 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Liabilities (“FAS 159”). FAS 159 provides an entity the option to report selected financial assets and liabilities at fair value and establishes new disclosure requirements for assets and liabilities to which the fair value option is applied. FAS 159 will be effective for us on Jan. 1, 2008.

We are currently assessing the impact of adopting the above standards on our consolidated financial position and results of operations.