International Financial Reporting Standard 12
Disclosure of Interests in Other Entities

 

 

In May 2011 the International Accounting Standards Board (IASB) issued IFRS 12 Disclosure of Interests in Other Entities. IFRS 12 replaced the disclosure requirements in IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures. In June 2012, IFRS 12 was amended by Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12). These amendments provided additional transition relief in IFRS 12, limiting the requirement to present adjusted comparative information to only the annual period immediately preceding the first annual period for which IFRS 12 is applied. Furthermore, for disclosures related to unconsolidated structured entities, the amendments removed the requirement to present comparative information for periods before IFRS 12 is first applied. Other IFRSs have made minor consequential amendments to IFRS 12, including Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (issued October 2012).

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INTERNATIONAL FINANCIAL REPORTING STANDARD 12

DISCLOSURE OF INTERESTS IN OTHER ENTITIES

 

OBJECTIVE

Meeting the objective

SCOPE

SIGNIFICANT JUDGEMENTS AND ASSUMPTIONS

Investment entity status

INTERESTS IN SUBSIDIARIES

The interest that non-controlling interests have in the group's activities and

cash flows

The nature and extent of significant restrictions

Nature of the risks associated with an entity's interests in consolidated

structured entities

Consequences of changes in a parent's ownership interest in a subsidiary

that do not result in a loss of control

Consequences of losing control of a subsidiary during the reporting period INTERESTS IN UNCONSOLIDATED SUBSIDIARIES (INVESTMENT ENTITIES)

INTERESTS IN JOINT ARRANGEMENTS AND ASSOCIATES

Nature, extent and financial effects of an entity's interests in joint

arrangements and associates

Risks associated with an entity's interests in joint ventures and associates

INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES

Nature of interests

Nature of risks

APPENDICES

International Financial Reporting Standard 12 Disclosure of Interests in Other Entities (IFRS 12) is set out in paragraphs 1-31 and Appendices A-D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the IFRS. Definitions of other terms

are given in the Glossary for International Financial Reporting Standards. IFRS 12

should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance

IFRS 12 Disclosure of Interests in Other Entities applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity.

The IFRS is effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted.Reasons for issuing the IFRS

Users of financial statements have consistently requested improvements to the disclosure of a reporting entity's interests in other entities to help identify the profit or loss and cash flows available to the reporting entity and determine the value of a current or future investment in the reporting entity.

They highlighted the need for better information about the subsidiaries that are consolidated, as well as an entity's interests in joint arrangements and associates that are not consolidated but with which the entity has a special relationship.

The global financial crisis that started in 2007 also highlighted a lack of transparency about the risks to which a reporting entity was exposed from its involvement with structured entities, including those that it had sponsored.

In response to input received from users and others, including the G20 leaders and the Financial Stability Board, the Board decided to address in IFRS 12 the need for improved disclosure of a reporting entity's interests in other entities when the reporting entity has a special relationship with those other entities.

The Board identified an opportunity to integrate and make consistent the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities and present those requirements in a single IFRS. The Board observed that the disclosure requirements of IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures overlapped in many areas. In addition, many commented that the disclosure requirements for interests in unconsolidated structured entities should not be located in a consolidation standard. Therefore, the Board concluded that a combined disclosure standard for interests in other entities would make it easier to understand and apply the disclosure requirements for

subsidiaries, joint ventures, associates and unconsolidated structured entities.

Main features of the IFRS

The IFRS requires an entity to disclose information that enables users of

financial statements to evaluate:

(a)        the nature of, and risks associated with, its interests in other entities;

and

(b)        the effects of those interests on its financial position, financial

performance and cash flows.

General requirements

    The IFRS establishes disclosure objectives according to which an entity discloses information that enables users of its financial statements the significant judgements and assumptions (and changes to those judgements and assumptions) made in determining the nature of its interest in another entity or arrangement (ie control, joint control or significant influence), and in determining the type of joint arrangement in which it has an interest; and

 the interest that non-controlling interests have in the group's activities and cash flows; andto evaluate:

the nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities, of the group;  the nature of, and changes in, the risks associated with its interests in consolidated structured entities;  the nature and extent of its interests in unconsolidated structured entities, and the nature of, and changes in, the risks associated with those interests;  the nature, extent and financial effects of its interests in joint arrangements and associates, and the nature of the risks associated with those interests;  the consequences of changes in a parent's ownership interest in a subsidiary that do not result in a loss of control; and  the consequences of losing control of a subsidiary during the reporting period The IFRS specifies minimum disclosures that an entity must provide. If the minimum disclosures required by the IFRS are not sufficient to meet the disclosure objective, an entity discloses whatever additional information is necessary to meet that objective.

The IFRS requires an entity to consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the requirements in the IFRS. An entity shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics.  Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), issued in October 2012, introduced an exception to the principle in IFRS 10 Consolidated Financial Statements that all subsidiaries shall be consolidated. The amendments define an investment entity and require a parent that is an investment entity to measure its investment in particular subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments:

Recognition and Measurement, if IFRS 9 has not yet been adopted) instead of consolidating those subsidiaries in its consolidated and separate financial statements. Consequently, the amendments also introduced new disclosure requirements for investment entities in this IFRS and IAS 27 Separate Financial Statements.

The objective of this IFRS is to require an entity to disclose information that enables users of its financial statements to evaluate:

(a)   the nature of, and risks associated with, its interests in other

entities; and

(b)    the effects of those interests on its financial position, financial performance and cash flows.  Meeting the objective

2     To meet the objective in paragraph 1, an entity shall disclose:

(a)       the significant judgements and assumptions it has made in determining:

the nature of its interest in another entity or arrangement;

the type of joint arrangement in which it has an interest

(paragraphs 7-9);

that it meets the definition of an investment entity, if applicable (paragraph 9A); and

(b)       information about its interests in:

(i)        subsidiaries (paragraphs 10-19);

(ii)       joint arrangements and associates (paragraphs 20-23); and

(iii)       structured entities that are not controlled by the entity

(unconsolidated structured entities) (paragraphs 24-31).

Scope

If the disclosures required by this IFRS, together with disclosures required by other IFRSs, do not meet the objective in paragraph 1, an entity shall disclose whatever additional information is necessary to meet that objective.

An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the requirements in this IFRS. It shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics (see paragraphs B2-B6).

This IFRS shall be applied by an entity that has an interest in any of the following:

(a)  subsidiaries

(b)  joint arrangements (ie joint operations or joint ventures)

(c)  associates

(d)  unconsolidated structured entities.

6 This IFRS does not apply to:

post-employment benefit plans or other long-term employee benefit

plans to which IAS 19 Employee Benefits applies.

an entity's separate financial statements to which IAS 27 Separate

Financial Statements applies. However, if an entity has interests in unconsolidated structured entities and prepares separate financial statements as its only financial statements, it shall apply the requirements in paragraphs 24-31 when preparing those separate financial statements.

an interest held by an entity that participates in, but does not have joint control of, a joint arrangement unless that interest results in significant influence over the arrangement or is an interest in a structured entity.

an interest in another entity that is accounted for in accordance with

IFRS 9 Financial Instruments. However, an entity shall apply this IFRS:

when that interest is an interest in an associate or a joint venture that, in accordance with IAS 28 Investments in Associates and Joint Ventures, is measured at fair value through profit or loss; or when that interest is an interest in an unconsolidated structured entity.

Significant judgements and assumptions

  An entity shall disclose information about significant judgements and  assumptions it has made (and changes to those judgements and assumptions) in determining:

that it has control of another entity, ie an investee as described in paragraphs 5 and 6 of IFRS 10 Consolidated Financial Statements;

  that it has joint control of an arrangement or significant influence over another entity; and  the type of joint arrangement (ie joint operation or joint venture)  when the arrangement has been structured through a separate vehicle.

8 The significant judgements and assumptions disclosed in accordance with

paragraph 7 include those made by the entity when changes in facts and circumstances are such that the conclusion about whether it has control, joint control or significant influence changes during the reporting period.

9    To comply with paragraph 7, an entity shall disclose, for example, significant judgements and assumptions made in determining that:

(a)  it does not control another entity even though it holds more than half of the voting rights of the other entity.

(b)  it controls another entity even though it holds less than half of the

voting rights of the other entity.

it is an agent or a principal (see paragraphs B58-B72 of IFRS 10).

it does not have significant influence even though it holds 20 per cent or more of the voting rights of another entity.

it has significant influence even though it holds less than 20 per cent of the voting rights of another entity.

Investment entity status When a parent determines that it is an investment entity in accordance

with paragraph 27 of IFRS 10, the investment entity shall disclose information about significant judgements and assumptions it has made in determining that it is an investment entity. If the investment entity does not have one or more of the typical characteristics of an investment entity (see paragraph 28 of IFRS 10), it shall disclose its reasons for concluding that it is nevertheless an investment entity.

When an entity becomes, or ceases to be, an investment entity, it shall disclose the change of investment entity status and the reasons for the change. In addition, an entity that becomes an investment entity shall disclose the effect of the change of status on the financial statements for the period presented,

including:

the total fair value, as of the date of change of status, of the subsidiaries

that cease to be consolidated;

the total gain or loss, if any, calculated in accordance with paragraph B101 of IFRS 10; and the line item(s) in profit or loss in which the gain or loss is recognised (if not presented separately).

Interests in subsidiaries   An entity shall disclose information that enables users of its consolidated financial statements

 to understand:

(i)        the composition of the group; and

(ii)       the interest that non-controlling interests have in the group's activities and cash flows (paragraph 12); and

 to evaluate:

the nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities, of the group (paragraph 13);

the nature of, and changes in, the risks associated with its  interests in consolidated structured entities (paragraphs 14-17);

the consequences of changes in its ownership interest in a subsidiary that do not result in a loss of control (paragraph 18); and (iv)

  the consequences of losing control of a subsidiary during the reporting period (paragraph 19).

  When the financial statements of a subsidiary used in the preparation of

consolidated financial statements are as of a date or for a period that is different from that of the consolidated financial statements (see paragraphs B92 and B93 of IFRS 10), an entity shall disclose:

(a)        the date of the end of the reporting period of the financial statements of

that subsidiary; and

(b)        the reason for using a different date or period.

The interest that non-controlling interests have in the

group's activities and cash flows

  An entity shall disclose for each of its subsidiaries that have non-controlling

interests that are material to the reporting entity:

the name of the subsidiary.

the principal place of business (and country of incorporation if different from the principal place of business) of the subsidiary.

the proportion of ownership interests held by non-controlling interests.

the proportion of voting rights held by non-controlling interests, if

different from the proportion of ownership interests held.

the profit or loss allocated to non-controlling interests of the subsidiary during the reporting period.

accumulated non-controlling interests of the subsidiary at the end of the reporting period.

(g)        summarised financial          information     about     the    subsidiary     (see paragraph B10).

The nature and extent of significant restrictions

 An entity shall disclose:

significant restrictions (eg statutory, contractual and regulatory

restrictions) on its ability to access or use the assets and settle the

liabilities of the group, such as:

those that restrict the ability of a parent or its subsidiaries to transfer cash or other assets to (or from) other entities within the group. guarantees or other requirements that may restrict dividends and other capital distributions being paid, or loans and advances being made or repaid, to (or from) other entities within the group. the nature and extent to which protective rights of non-controlling

 interests can significantly restrict the entity's ability to access or use the assets and settle the liabilities of the group (such as when a parent is obliged to settle liabilities of a subsidiary before settling its own

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