IFRS 12 Disclosure of Interests in Other Entities

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Laura Sharon Young
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1 IFRS 12 Disclosure of Interests in Other Entities

2 Agenda Background and objectives Main changes to disclosure requirements Summarised financial information Other disclosure requirements for subsidiaries, joint arrangements and associates Structured entities Convergence with US GAAP Transition Practical issues Resources Page 2

3 Background and objectives Background Users requested more information about an entity s interest in other entities Global financial crisis put emphasis on the project Integrate disclosures into a single standard Convergence with US GAAP for structured entities Disclosures should enable users to understand: Nature of, and risks associated with, interests in other entities Effects of those interests on financial position, financial performance, and cash flows Page 3

4 Main changes to disclosure requirements Subsidiaries Significant judgements and assumptions regarding whether an entity has control (and changes thereto) Significant restrictions on reporting entity s ability to use assets and settle liabilities of the group Summarised financial information for subsidiaries that have NCI that is material to the reporting entity Page 4

5 Main changes to disclosure requirements Associates and joint arrangements Significant judgements and assumptions (and changes thereto) regarding: Whether an entity has significant influence or joint control Type of joint arrangement Nature of individually material associates and joint arrangements: Nature of the relationship, activities, whether strategic to the reporting entity Name, place of business Page 5

6 Main changes to disclosure requirements Associates and joint ventures Summarised financial information for associates and joint ventures (JVs): For individually material associates and JVs Entire amount reported in associate s or JV s financial statements In aggregate, for all other associates and JVs Only investor s (joint venturer s) share of amount reported in associate s or JV s financial statements Required even if fair value option is used Page 6

7 Main changes to disclosure requirements Structured entities 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. Help users understand the nature of, and changes in, risks related to consolidated structured entities Terms and conditions that could require the group to provide financial support Cases where the group has provided financial or other support (without being required) Current intentions to provide financial support Page 7

8 Main changes to disclosure requirements Unconsolidated structured entities Nature and extent of interests, including: Purpose, size, activities and financing Nature of risks associated with its interests Carrying amounts of the assets and liabilities recognised in its financial statements Best estimate of maximum exposure to loss Additional information for entities for which there is no involvement at reporting date Page 8

9 Summarised financial information Material interests Subsidiaries with material NCI Associates Joint ventures Current assets New New a Non-current assets New New a Current liabilities New New a Non-current liabilities New New a Revenue New a New Profit or loss from continuing operations Post-tax profit/loss from discontinued ops New New New New New Other comprehensive income New New Total comprehensive income New New New Page 9

10 Summarised financial information Material interests All amounts disclosed are entire amount (100%) in JV s or associate's financial statements Summarised financial information required even if fair value option is used Not required to be under IFRS, if criteria met For material JVs and associates, disclose: Accounting method (equity method or fair value) Fair value, if quoted price available Dividends received Additional financial information required for JVs Page 10

11 Summarised financial information Immaterial interests Associates Joint ventures Carrying amount New New Profit or loss from continuing operations New New Post-tax profit/loss from discontinued ops New New Other comprehensive income New New Total comprehensive income New New Only required when equity method is used Separate presentation of associates and joint ventures All amounts are investor s (joint venturer s) share Page 11

12 Other disclosure requirements Nature of interests Required for: Subsidiary with material NCI Individually material joint arrangements Individually material associates Required disclosures Name Nature of relationship Principal place of business and country of incorporation Proportion of ownership interests and voting rights held (if different) Page 12

13 Other disclosure requirements Significant judgements and assumptions Significant judgements and assumptions made in determining whether an entity has control, joint control, or significant influence, and type of joint arrangement (joint venture or joint operation) Examples: Why there is not control when an entity holds more than 50% of voting rights of another entity Why there is control when an entity holds less than 50% of voting rights of another entity Why an entity is considered an agent or a principal Page 13

14 Other disclosure requirements Subsidiaries: Changes in ownership interests Carried forward requirements from IAS 27: Changes in ownership without loss of control and effect on equity Information about consequences of losing control of a subsidiary Gain or loss recognised Portion of gain or loss related to remeasurement of retained interest Line item in profit or loss in which it has been recognised Page 14

15 Other disclosure requirements Subsidiaries: Restrictions on group Significant restrictions on ability to access or use assets and settle liabilities of the group, such as: Restrictions on transferring cash within the group Restrictions on dividends and other capital distributions being paid, or loans and advances within the group Nature and extent to which protective rights of NCI can significantly restrict ability to access or use assets and settle liabilities of the group Carrying amounts of assets and liabilities to which restrictions apply Page 15

16 Other disclosure requirements Joint ventures and associates Restrictions on the transfer of funds When associate s or JV s financial statements are as of a different date than the group Losses in excess of investment Contingent liabilities Page 16

17 Other disclosure requirements Joint ventures: Commitments Disclose unrecognised and recognised commitments Unrecognised commitments - examples: Contribute funding or resources: Founding documents or pre-existing agreement Capital-intensive projects Unconditional purchase obligations by the joint venturer Loans or other financial support Contribute assets or services Acquire another party s interest Page 17

18 Structured entities What is a structured entity? Designed so that voting or similar rights are not dominant factor in deciding control Voting rights relate to administrative tasks Relevant activities are directed by contract Common features or attributes: Restricted activities Narrow and well-defined objective Cannot finance activities without subordinated support Financing through multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches) Page 18

19 Structured entities Consolidated Terms and contractual arrangements that could require group to provide financial support to consolidated structured entities If financial or other support given without having obligation to do so, disclose: Type and amount Reasons for that decision If support resulted in control, factors in that decision Current intention to provide financial or other support Page 19

20 Structured entities Unconsolidated Nature and extent of interests Qualitative and quantitative information Nature, purpose, size, activities and financing Sponsored structured entities without interest at end of reporting period: How determined which entities it sponsors Income received, and type Carrying amount of assets transferred during reporting period Use tables and relevant categories Page 20

21 Structured entities Type of asset in unconsolidated entity Total fee income for the year ended 20X3 CU million 20X2 CU million 20X1 CU million Collateralised debt 1, obligations Residential mortgagebacked 6,055 4,844 4,117 securities Commercial mortgagebacked securities Assets under lease Credit cards receivables Total 8,479 6,783 5,765 Assets securitised during the year Type of asset in unconsolidated entity 20X3 CU million 20X2 CU million 20X1 CU million Collateralised debt 14,650 11,720 9,962 obligations Residential mortgagebacked 86,500 69,200 58,820 securities Commercial mortgagebacked 12,546 10,037 8,532 securities Assets under lease 4,739 3,791 3,223 Credit cards receivables 2,695 2,156 1,833 Total 121,130 96,904 82,370 Page 21

22 Structured entities Unconsolidated Nature of risks: Carrying amounts of interests, and where recognised Amount that best represents maximum exposure Comparison of the above amounts Other relevant information If provided financial support without obligation to do so, disclose: Type and amount of financial support provided Reasons for providing support Current intentions to provide financial or other support Page 22

23 Structured entities Unconsolidated At 31 December 20X3 Maximum exposure to loss in unconsolidated structured CU million Type of asset in unconsolidated entity Total Maximum exposure to risk Credit Investments guarantees Liquidity Commitments Carrying amount in statement of financial position Originated by XYZ Bank Assets Liabilities Collateralised debt obligations Subtotal Originated by other entities Assets Liabilities Collateralised debt obligations 6,031 1,856 4,175 1,856 (167) Real estate, credit-related and (285) other investing 6, ,696 Assets under lease (2) Credit card receivables 1,260 1,260 1,260 Subtotal 14,747 3, ,340 3,159 (427) Total 14,943 3, ,340 3,355 (427) Page 23

24 Convergence with US GAAP Most of the disclosures for structured entities are similar to those currently required for US GAAP However, IFRS 12 also requires disclosure of: Interests of NCI in the activities of a consolidated structured entity Risks from sponsoring an unconsolidated structured entity for other risk disclosures are not provided IFRS 12 also requires more disclosure for subsidiaries, joint arrangements and associates Summarised financial information for material entities Page 24

25 Transition Effective for annual periods beginning on or after 1 January 2013 Encouraged to provide disclosures before 2013 Can provide disclosures without early adopting IFRS 10, IFRS 11, IAS 27 (2011) and IAS 28 (2011) Page 25

26 Practical issues How will you gather and summarise required information, both for implementation, and on an ongoing basis? Do you have a legal right to obtain information? For joint ventures and associates, is it impracticable or would there be undue cost to obtain IFRS financial statements? At what level should information be aggregated (for immaterial joint ventures and associates)? Page 26

IFRS 12. Disclosure of Interests in Other Entities

IFRS 12. Disclosure of Interests in Other Entities IFRS 12 Disclosure of Interests in Other Entities Agenda Background and objectives Main changes to disclosure requirements Summarised financial information Other disclosure requirements for subsidiaries,