IFRS 12 – Disclosures of Interests in Other Entities
The aim of IFRS 12 is to require an entity to provide information that helps the users of its financial statements in evaluating:
- the nature of its interests in other entities;
- the risks associated with those interests;
- the impact of the said interests on its statement of financial position, statement of comprehensive income, and statement of cash flows.
In order to meet the aim of this standard (mentioned above), an entity is required to disclose the following:
a) the significant assumptions and judgments the entity has made in assessing:
- the nature of its stake in another entity or business arrangement;
- the type of joint arrangement in which it has interest;
- that it fulfills the criteria laid down for recognition as an investment entity, if applicable; and
b) information regarding its stake in the following:
- Joint arrangements
- structured entities that are not in its control
This standard is applicable to all those entities that have interests in any of the following:
- Joint ventures
- Joint operations
- Unconsolidated structured entities
This standard is not applicable to the following:
- All those benefit plans targeted towards employees that are dealt with by IAS 19 Employee Benefits;
- An entity’s separate financial reports to which IAS 27 Separate Financial Statements, is applicable;
- An interest in a joint arrangement held by an entity that does not have joint control of the said arrangement; and
- Any interest in another entity that is dealt by in compliance with the requirements of IFRS 9 Financial Instruments.
An entity that has been established/ designed in order to ensure that voting or similar rights are not the main factors in deciding who has control over the entity, such as when the voting rights only pertain to administrative tasks and the relevant activities are directed through contractual agreements.
Significant Assumptions and Judgements
An entity should present or disclose information regarding significant assumptions and judgments it has made (including changes to those assumptions and judgments) in assessing:
- that it controls another entity;
- that it jointly controls an arrangement or has significant power/ influence over another entity; and
- the type of the arrangement (i.e. joint venture or joint operation) only if the said arrangement has been structured through the use of a separate vehicle.
Examples of situations in which an entity is required to disclose information regarding significant assumptions and judgments it has made in determining that:
- it controls another entity despite having less than 50 percent of the voting rights
- it does not have control over another entity despite having more than 50 percent of the voting rights
- It is either a principal or an agent as described in IFRS 10
- It enjoys significant influence over another entity despite having less than 20 percent of the voting rights of that entity
- It does not enjoy significant influence over another entity despite having 20 percent or more of the voting rights of that entity.
Status of Investment Entity
When a parent entity determines that it meets the definition of an investment entity as mentioned in IFRS 10 then it should provide information through disclosures in its financials regarding significant assumptions and judgments it has made in determining that it is an investment entity. If the entity does not have typical characteristics of an investment entity then it should disclose the reasons for it not being an investment entity.
When any entity either becomes or ceases to be, an investment entity then that entity should disclose the change of status as well as the reasons behind the change. In addition, any entity whose status changes to an investment entity should disclose the impact of the status change on the financial statements for the financial period presented.
Interest in Subsidiaries
An entity should present or disclose all the information that is necessary for enabling the users of its consolidated financials to:
- Understand the group composition;
- Understand the stake that minority interest have in the group’s operations and cash flows;
- Evaluate the nature as well as the extent of limitations imposed on its capability to use or access assets, and payment obligations of the group;
- Evaluate the nature of and changes in the risks related to its stake in consolidated entities (the structured ones);
- Evaluate the impact of changes in its ownership in a subsidiary that did not result in loss of control; and
- Evaluate the impact of losing control over a subsidiary during a financial year.
Interest NCIs have in Group Operations and Cash Flows
An entity should disclose the following for each subsidiary with material NCIs:
- Subsidiary Name
- Subsidiary’s principal place of business (and country of incorporation of the subsidiary if it is different from the principal business place)
- The proportion of ownership stake held by NCIs
- The proportion of voting rights held by NCIs, if different from the percentage of ownership held.
Nature of Risks Related to an Entity’s Interests in Consolidated Structured Entities (CSE)
An entity should disclose any terms of contract/ agreement that could demand it or any of its subsidiaries to provide monetary help to a CSE.
If financial support has been provided to a CSE without any contractual arrangement in place then in such a scenario the entity should disclose the following:
- The type and amount of financial support provided including circumstances in which the parent or its subsidiaries helped the CSE in obtaining monetary support.
- The reasons for providing a CSE with financial help.
Interest in Unconsolidated Subsidiaries
As per IFRS 10, an investment entity should apply for exemption from consolidation and at the same time, it should take into account its stake in its subsidiaries at fair price/ value through the statement of comprehensive income.
For stake in each unconsolidated subsidiary, an entity should disclose the following:
- Subsidiary name;
- The principal business place of the subsidiary (and country of incorporation if it is different from the principal business place);
- The proportion of ownership interest held;
- The proportion of voting rights held if different from the percentage of ownership interests held; and
- Details of certain transactions and relationships between the entity and its subsidiary.
In addition, the entity should disclose the following:
- The entity is an investment entity;
- Information regarding significant assumptions and judgments that have been made in determining whether it is an investment entity, and specially where the entity does not have any typical characteristics of an investment entity;
- Information regarding an entity becoming or ceasing to be an investment entity.
An entity making the above-mentioned disclosures are not required to give other disclosures mentioned in IFRS 12.
Interest in Associates and Joint Arrangements
An entity should disclose all the information that it considers necessary for enabling users of its financials to evaluate:
- The type, extent, and impact of its stake in an associate and/ or a joint arrangement including the impact of its agreement with other investors having significant power/ influence or joint control over that associate and/ or joint arrangement.
- The type of, as well as the changes in, risks related to its stake in an associate or a joint venture.
Nature, Extent, and Financial Impact of an Entity’s Stake in Joint Arrangements and Associates
An entity should disclose:
1) For each joint arrangement and associate material to the parent/ reporting entity:
- Name of the joint arrangement or associate
- Nature of the relationship the entity has with the associate or the joint arrangement
- Principal place of business of the joint arrangement or associate (and country of incorporation if different from the principal business place)
- percentage of ownership stake held
- Percentage of voting rights if different from the percentage of ownership interest held by the reporting entity.
2) For each joint venture and associate material to the parent/ reporting entity:
- Whether the investment in an associate or joint venture is measured at fair value or using the equity method
- Summarised financial information about an associate or the joint venture
- If the joint venture or associate is accounted for using the fair value method, the equity method, or if there is a quoted market price for the investment.
3) An entity should disclose, in aggregate, the carrying value of its stake in all individually immaterial associates or joint ventures that are accounted for using the equity method.
4) An entity should also disclose the following:
- The nature and extent of any significant restrictions on the ability of an associate or a joint venture to transfer money to the entity to repay loans or advances made by entity or in the form of cash dividends.
- when financials of an associate or a joint venture used in applying the equity method are as on a date or for a financial period that is different from that of the reporting entity then in such a scenario the entity should also disclose the date of the end of the reporting period of the financials of that associate or joint venture as well as the reasons for using a different period or date.
- the unrecognised share of losses of an associate or a joint venture or, both for the financial period and cumulatively, if the entity has stopped recognising its losses in an associate or a joint venture when applying the equity method.
Interest in Unconsolidated Structured Entities
An entity should disclose all the information necessary for enabling user of its financials to:
- Understand the nature and extent of its stake in unconsolidated structured entities;
- Evaluate the nature of, and changes in, risks related with its stake in unstructured consolidated entities.