IFRS 12 Disclosure Of Interest In Other Entities |

Completely understand 1 consolidated and 2 separate financial statements

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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
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IFRS 12 Disclosure of Interest in Other Entities

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IFRS 12 Disclosure of Interests in Other Entities is a consolidated disclosure standard requiring a wide range of disclosures about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated ‘structured entities’. Disclosures are presented as a series of objectives, with detailed guidance on satisfying those objectives.

An investment entity that prepares financial statements in which all of its subsidiaries are measured at fair value through profit or loss presents the disclosures relating to investment entities required by IFRS 12. [IFRS 12 6 b ii]

IFRS 12 requires disclosure of the significant judgments and assumptions that an entity has made in determining the nature of its interest in another entity or arrangement. It also Read more

Control Joint control Significant influence

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This is a discussion on IFRS 10 – IFRS 12 Control Joint control Significant influence and the accounting applied. It is added with some other logical IFRS topics: the fair value option and the other investments (no control, no joint control and no significant influence).

ControlControl of an investee Control of an investee

Consolidated subsidiaries – Consolidated structured entities Control Joint control Significant influence

For an investor to control an investee, the investor must possess all of the following elements:

  • Power over the investee, which is described as having existing rights that give the current ability to direct the activities of the investee that significantly affect the investee’s returns (such activities are referred to as the ‘relevant activities’)
  • Exposure, or rights, to variable returns
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Control in debt restructuring in Structured entity

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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.

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

Background and purpose [glossary_exclude]Control in debt restructuring in Structured entity[/glossary_exclude]

A corporate … Read more

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

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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 … Read more

Disclosures subsidiaries and NCI

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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
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Disclosures unconsolidated structured entities

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Disclosures unconsolidated structured entities – 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 a bank or other financial institution.

Disclosures will be in table forms specifying the following attributes [IFRS 12 26]:

Type of structured entity

Nature and purpose

Interest held by the reporting entity

Total assets

20×5

Total assets

20×4

Securitisation vehicles for loans and advances

Disclosures unconsolidated structured entities

Disclosures unconsolidated structured entities

To generate:

  • funding for the lending activities,
  • earn margin through the sale of notes to investors
  • earn fees for loan serving

These vehicles are financed through the issue of notes

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Disclosures immaterial associates and joint ventures

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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]

.

[IFRS 12 B16(a)]

[IFRS 12 B16(c)]

[IFRS 12 B16(d)]

.

.


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

In this disclosure, Vopak … Read more

Disclosures material joint operations

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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, … Read more

Disclosures material joint ventures

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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 Read more