IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 Disclosure of Interests in Other Entities

Here we are going to introduce you with IFRS 12 Disclosure of interest in other entities. This is a high-level summary of broad objectives, categories and nature of the disclosure required by the standard. Thus, readers should not consider this to be a comprehensive or complete listing of the disclosure requirements of IFRS 12.

 

Background

IFRS 12 requires an entity to disclose information that enables users of its financial statements to evaluate the nature and risk associated with its interest in other entity like subsidiary, associate or joint arrangements. It states detailed disclosure requirements of interest in said investments.

This standard was issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.

 

Objective

The objective of standard is to empowered users of its financial statements to evaluate:

• the nature of, and risks associated with, its interests in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity; and
• the effects of those interests on its financial position, financial performance and cash flows.

To meet the above said objective, an entity shall disclose:

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

(i) the nature of its interest in another entity or arrangement;

(ii) the type of joint arrangement in which it has an interest;

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

 

(b) information about its interests in:

(i) subsidiaries;

(ii) joint arrangements and associates;

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

 

If the disclosures required by this IFRS 12, together with disclosures required by other IFRSs, do not meet the above-mentioned objective, 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 12. It shall aggregate or dis-aggregate 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

 

Scope

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

(a) subsidiaries

(b) joint arrangements

(c) associates

(d) unconsolidated structured entities.

 

Except as described in paragraph B17 of bear standard, the requirements in this IFRS 12 apply to an entity’s interests listed in paragraph 5 of bear standard that are classified (or included in a disposal group that is classified) as held for sale or discontinued operations in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

 

This IFRS 12 does NOT apply to:

(a) post‑employment benefit plans or other long‑term employee benefit plans to which IAS 19 Employee Benefits applies.

(b) an entity’s separate financial statements to which IAS 27 Separate Financial Statements applies. However:

(i) 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 of bear standard when preparing those separate financial statements.

(ii) an investment entity that prepares financial statements in which all of its subsidiaries are measured at fair value through profit or loss in accordance with paragraph 31 of IFRS 10  shall present the disclosures relating to investment entities required by this IFRS 12.

(c) 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.

(d) an interest in another entity that is accounted for in accordance with  IFRS 9 Financial Instruments. However, an entity shall apply this IFRS 12:

(i) 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

(ii) when that interest is an interest in an unconsolidated structured entity.

 

Key Definitions

Interest in another entity

Refers to contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. An interest in another entity can be evidenced by, but is not limited to, the holding of equity or debt instruments as well as other forms of involvement such as the provision of funding, liquidity support, credit enhancement and guarantees. It includes the means by which an entity has control or joint control of, or significant influence over, another entity. An entity does not necessarily have an interest in another entity solely because of a typical customer supplier relationship.

Structured entity

An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.

 

Significant judgements and assumptions

 

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

·       that it controls another entity

·       that it has joint control of an arrangement or significant influence over another entity

·       the type of joint arrangement (i.e. joint operation or joint venture) when the arrangement has been structured through a separate vehicle.

  

Interests in subsidiaries

An entity shall disclose information that enables users of its consolidated financial statements to:

Ø  understand the composition of the group

Ø  understand the interest that non-controlling interests have in the group's activities and cash flows

Ø  evaluate the nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities, of the group

Ø  evaluate the nature of, and changes in, the risks associated with its interests in consolidated structured entities

Ø  evaluate the consequences of changes in its ownership interest in a subsidiary that do not result in a loss of control

Ø  evaluate the consequences of losing control of a subsidiary during the reporting period.

  

Interests in unconsolidated subsidiaries

In accordance with  IFRS 10  Consolidated Financial Statements, an investment entity is required to apply the exception to consolidation and instead account for its investment in a subsidiary at fair value through profit or loss.

Where an entity is an investment entity, IFRS 12 requires additional disclosure, including:

ü  the fact the entity is an investment entity

ü  information about significant judgements and assumptions it has made in determining that it is an investment entity, and specifically where the entity does not have one or more of the 'typical characteristics' of an investment entity 

ü  details of subsidiaries that have not been consolidated (name, place of business, ownership interests held)

ü  details of the relationship and certain transactions between the investment entity and the subsidiary (e.g. restrictions on transfer of funds, commitments, support arrangements, contractual arrangements)

ü  information where an entity becomes, or ceases to be, an investment entity

An entity making these disclosures are not required to provide various other disclosures required by IFRS 12.

 

Interests in joint arrangements and associates

An entity shall disclose information that enables users of its financial statements to evaluate:

·       the nature, extent and financial effects of its interests in joint arrangements and associates, including the nature and effects of its contractual relationship with the other investors with joint control of, or significant influence over, joint arrangements and associates

·       the nature of, and changes in, the risks associated with its interests in joint ventures and associates.

  

Interests in unconsolidated structured entities

An entity shall disclose information that enables users of its financial statements to:

Ø  understand the nature and extent of its interests in unconsolidated structured entities

Ø  evaluate the nature of, and changes in, the risks associated with its interests in unconsolidated structured entities.