IFRS 12 Disclosure of Interest in Other Entities

Completely understand 1 consolidated and 2 separate financial statements

Completely understand 1 consolidated and 2 separate financial statements is a summary of the requirements of IFRS 10 Consolidated financial statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint ventures and IAS 27 Separate financial statements.

Major topics discussed are:

  • The single control model in IFRS 10 that applies to all entities (including ‘structured entities’ or ‘variable interest entities’ as they are referred to in US GAAP). The changes introduced by IFRS 10 require continuous management to exercise significant judgement to determine which entities are controlled, and therefore are required to be consolidated by a parent. IFRS 10 may periodically change which entities are within a group
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Control in debt restructuring in Structured entity Only 1 Perfect Quality Read

Control in debt restructuring in Structured entity provides a case of obtaining control in a transaction. Following is a case on the assessment whether certain stakeholders in a transaction/structure have obtained control over a certain entity in the transaction in line with the requirements of IFRS 10 Consolidated financial statements. Only one stakeholder can be in control! [IFRS 10 B16] Or no stakeholder is in control. Or one stakeholder is in control and has to consolidate the investigated entity  in its consolidated financial statements. Here is the case. Control in debt restructuring

THE CASE – Assessing control for a debt restructuring structured entity with limited activities 

Background and purpose Control in debt restructuring in Structured entity

A … Read more

Investment valued at cost

A method of accounting for an investment, whereby the investment is recognised at cost. The investor recognises revenue from the investment only to the extent that the investor is entitled to receive distributions from accumulated surpluses of the investee arising after the date of acquisition. Entitlements due or received in excess of such surpluses are regarded as a recovery of investment, and are recognised as a reduction of the cost of the investment.

Investments material associates disclosures

Investments material associates disclosures

Investments material associates disclosures

The subject of investments material associates disclosures may be aggregated for interests in similar entities, with the method of aggregation being disclosed (aggregation being consolidation). A quantitative and qualitative analysis, taking into account the different risk and return characteristics of each entity, is made in order to determine the aggregation level.

IFRS 12 gives the following examples of aggregation levels:

However, as a minimum, information is given separately for interests in subsidiaries, joint ventures, joint operations, associates and unconsolidated structured entities. [IFRS 12.B4–B6]

IFRS 12 emphasises that it’s necessary for financial statement preparers to strike a balance between burdening … Read more

Disclosures subsidiaries and NCI

Disclosures subsidiaries and NCI – 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 nameDisclosures subsidiaries and NCI
  • Its principal place of business (and country of incorporation, if different)Disclosures subsidiaries and NCI
  • The proportion of ownership interests held by non-controlling interestsDisclosures subsidiaries and NCI
  • The proportion of voting rights held by noncontrolling interests
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Disclosures immaterial associates and joint ventures 10 best examples!

Disclosures immaterial associates and joint ventures – An entity provides the disclosures separately for individually immaterial associates and individually immaterial joint ventures – they are not combined. [IFRS 12 21 (c) and IFRS 12 B16]

Based on IFRS 12 21, IFRS 12 B16, the disclosures are made like in this example from Volkswagen Group Annual Report 2018: 

Disclosures immaterial associates and joint ventures

[IFRS 12 21 (c) and IFRS 12 B16]

[IFRS 12 B16]

Disclosure joint operation[IFRS 12 B16(a)] [IFRS 12 B16(c)] [IFRS 12 B16(d)]

IFRS 12 subsidiaries with NCI are disclosed as follows

Aggregate information on non-material joint ventures and associates (Vopak N.V. 2018 financial statements, pages 153 and 156)

In this disclosure, Vopak explains that a large part of the … Read more

Disclosures material joint ventures

Disclosures material joint ventures – The disclosures may be aggregated for interests in similar entities, with the method of aggregation being disclosed (aggregation resembling/replacing consolidation). A quantitative and qualitative analysis, taking into account the different risk and return characteristics of each entity, is made in order to determine the aggregation level. IFRS 12 gives the following examples of aggregation levels: by nature of activities, by industry or by geography. [IFRS 12.4, B2–B6]

However, as a minimum, information is given separately for interests in subsidiaries, joint ventures, joint operations, associates and unconsolidated structured entities. [IFRS 12.B4–B6]

Note a) [IFRS 12 B14(a)]

IFRS 12 indicates that the amounts included in the summarised financial information are … Read more

Disclosures material joint operations

Disclosures material joint operations – Unlike joint ventures, IFRS 12 requires only limited quantitative disclosures for joint operations, including information about significant judgments and assumptions made in determining the classification of a joint arrangement that is structured through a separate entity. [IFRS 12 7 (c) and IFRS 12 21 (a)] Disclosures material joint operations

The classification of joint arrangements is discussed here. Disclosures material joint operations

Based on IFRS 12 7 (c), IFRS 12 21 (a), the disclosures are made like in this illustrative example: Disclosures material joint operations

Disclosures material joint operations

BHP Annual Report 2018 [page 159] – Accounting policies:

Joint arrangements: The Group undertakes a number of business activities through joint arrangements, which exist when … Read more

Disclosures unconsolidated structured entities

Disclosures unconsolidated structured entities – IFRS 12 defines structured entity as an entity that has been designed so that voting or similar rights are not the dominant factor on deciding who controls the entity. Paragraph B23 of IFRS 12 provides the following examples of structured entities: Disclosures unconsolidated structured entities

  1. Securitisation vehicles. Disclosures unconsolidated structured entities
  2. Asset backed financings. Disclosures unconsolidated structured entities
  3. Some investment funds. Disclosures unconsolidated structured entities

The term ‘unconsolidated structured entities’ refers to all structured entities that are not controlled by the reporting entity.

Disclosures – Generic model

The level of disclosure in respect of unconsolidated structured entities will depend on the facts and circumstances of the entity but is likely to be more complex for … Read more

Consolidated subsidiaries joint operations and other entities Investments in joint ventures associates and structured entities

Consolidated subsidiaries joint operations and other entities Investments in joint ventures associates and structured entities – want a quick understanding of all control nuances, read this!  IFRS 12 provides one comprehensive disclosure standard for equity instruments in Subsidiaries, Joint arrangements (Joint operations and Joint ventures), Associates and Structured entities. Hence, management needs to exercise a certain degree of judgement in determining whether a new investee is controlled and therefore consolidated. For instance, disclosure and internal documentation is required for how voting rights are evaluated and whether it is a principal or an agent etc. Consolidated subsidiaries joint operations and other entities Investments in joint ventures associates and structured entities

Classifying these equity instruments requires time, effort and the exercise of … Read more