IFRS 12 requires disclosures for each of an entity’s subsidiaries that have material non-controlling interests. Such disclosures assist users when estimating future profit or loss and cash flows (for example, by identifying the assets and liabilities that are held by subsidiaries, risk exposures of particular group entities, and those subsidiaries that have significant cash flows). The disclosures are as follows (new disclosures compared to the previous standard are in bold):
- The subsidiary’s name1
- Its principal place of business (and country of incorporation, if different)2
- The proportion of ownership interests held by non-controlling interests3
- The proportion of voting rights held by noncontrolling interests, if different from the proportion of ownership interests held4
- The profit or loss allocated to non-controlling interests of the subsidiary during the reporting period.
- The accumulated non-controlling interests of the subsidiary at the end of the reporting period.
- Summarised financial information about the subsidiary
The summarised financial information referred to above helps users to understand the interest that noncontrolling interests have in the group’s activities and cash flows. It includes the assets, liabilities, profit or loss and cash flows of the subsidiary. It might include, but is not limited to, current/non-current assets, current/non-current liabilities, revenue, profit or loss, and total comprehensive income. Dividends paid to non-controlling interests should also be disclosed. The amounts disclosed should be given before intercompany eliminations.
Note a) [IFRS 12 10 (a) (i)]
IFRS 12 requires the disclosure of information that enables users to understand the composition of the group.
One method of disclosure is to provide a diagram of the group structure showing material subsidiaries.
This example shows the disclosure in narrative form, focusing on key areas of interest. Another approach would be to present the information in tabular format.
Note b) [IFRS 12 14]
An entity discloses the terms of any contractual arrangements that could require the parent or its subsidiaries to provide financial support to a consolidated structured entity, including events or circumstances that could expose the reporting entity to a loss.
Depending on the facts and circumstances of an entity in relation to the overall disclosure objective of IFRS 12 (see ‘Disclosure of Interest in Other Entities‘), it may be appropriate to disclose all financing arrangements that are in place, regardless of whether they have been used, or it may be sufficient to disclose only undrawn amounts.
IFRS 12 does not require disclosure of the operating segment to which a subsidiary with material NCI belongs.
It is disclosed in this example because it provides better information about the subsidiary in the context of the composition of the group.
However, many groups are that large that a list of subsidiaries with material NCI allocated to operating segments is only providing non-information. As a result subsidiaries with NCI are disclosed as follows:
Note d) [IFRS 12 12 (c)]
IFRS 12 requires disclosure of the proportion of ownership interests held by NCI.
See the following example from HSBC Holdings plc Annual Report and Accounts 2018
Note e) [IFRS 12 B10(b)]
IFRS 12 does not specify the level of detail to be included in the summarised financial information, although the information should cover the assets, liabilities, profit or loss and cash flows of the subsidiary; it then provides some example line items for consideration.
IFRS 12 does not specify whether the disclosures in respect of subsidiaries with material NCI should be based on subsidiaries on a stand-alone basis, or should take into account investees of that subsidiary (subgroups).
IFRS 12 requires the amounts presented in the summarised financial information to be before intercompany eliminations. However, if an entity discloses the information on a subgroup basis, it is not clear whether inter-company eliminations within that subgroup should be made. In this example, inter-company eliminations have not been made to the information for insurance manufacturing operations in order to show the interests of NCI in that subgroup as a whole.
Note 67 on page 68 of the HSBC 2018 Annual report is as follows:
67 The results presented for insurance manufacturing operations are shown before elimination of intercompany transactions with HSBC non-insurance operations.