IFRS 9 Financial Instruments - The Accounting Library
[pic]
for Accounting Professionals
[pic]
IFRS 12 Disclosure of Interests in Other Undertakings
2013
IFRS WORKBOOKS
(1 million downloaded)
Welcome to the EU Tacis IFRS Workbooks sixth (2013) edition! This is the tenth anniversary of the first edition in 2003. The changes from the 2012 edition are minimal, with no new standard issued in the past year. Major changes are anticipated to IFRS 9, IFRS 4, IAS 17 and IAS 18. Exposure drafts (proposals) have been issued, but have not yet been incorporated into the standards. To the books, we have added an article: ‘IFRS- grabbing the tiger by the tail’ which has been published by bankir.ru in Russian. This article covers IFRS teaching issues for each standard and a number of opinions and discussion points.
The set of books provides a book for every standard, plus three books on consolidation. Financial instrument bookkeeping is covered in IAS 32/39 (book 3) and in IFRS 9. IFRS 7 is complemented by FINREP, which illustrates practical use and presentation formats. An introduction to IFRS and transformation models from Russian accounting to IFRS complete the set.
Each workbook is a combination of Information, Examples, Self-Test Questions and Answers.
Thanks are due to those who made these publications possible and to you, our readers, for your continued support. I would like to express my gratitude to: Igor Sykharev and Tatiana Trifonova of the Ministry of Finance who provided a link from the Ministry’s site. Gulnara Makhmutova and Adel Valeev provided the updated Russian texts and editing. Marina Korf and Yulia Ykhanova of bankir.ru provided help, advice and space on its website. Sergey Dorozhkov and Elina Buzina of Association of Russian Bankers’ Institute of Banking ran excellent IFRS courses on all standards which enabled us to test this material and learn new insights from them and the participants. Please join us there for the best consolidation course in Russia.
World Bank courses for the Bank of Tanzania (‘BOT’) provided new IFRS and banking insights: thanks to Albert Mkenda BOT and my colleague Benson Mahenya among many others. IFRS assistance to the Bank of Mongolia (‘BOM’) with PricewaterhouseCoopers (thanks to Ekaterina Nekrasova, Jelena Pesic and Vladislav Kononenko) provided exposure to Mongolian commercial bank reporting and blending IFRS with bank prudential ratios. Oyungerel Gonchig, Project Manager at World Bank, Mongolia, and our counterparts at BOM: Oyuntsatsral Banid, Bunchinsuren Dagva, Borkhuu Gotovsuren, Batmaa Ochirbat and Gantsetseg Myagmarjay contributed to a memorable project.
On the back page are notes covering copyright details and the history of the series.
Please tell your friends and colleagues where to find our books. We hope that you find them useful.
Robin Joyce
Professor of the Chair of International Banking and Finance,
Financial University under the Government of the Russian Federation
Professor, Russian Academy of National Economy and Public
Administration under the President of the Russian Federation
Visiting Professor of the Siberian Academy of Finance and Banking Moscow, Russia 2013
CONTENTS
INTRODUCTION 5
Definitions 6
General requirements 8
Objective 9
Scope 10
Investment Entities 11
Significant judgements and assumptions 14
Interests in subsidiaries 15
The interest that non-controlling interests (minority interests) have in the group's activities and cash flows 16
The nature and extent of significant restrictions 17
Nature of the risks associated with an undertaking's interests in consolidated structured undertakings 17
Consequences of changes in a parent's ownership interest in a subsidiary that do not result in a loss of control 18
Consequences of losing control of a subsidiary during the reporting period 19
Interests in joint arrangements and associates 19
Nature, extent and financial effects of an undertaking's interests in joint arrangements and associates. 19
Interests in unconsolidated structured undertakings 21
Summarised financial information for subsidiaries, joint ventures and associates 27
Commitments for joint ventures 30
IFRS 12 Disclosure of Interests in Other Undertakings Effective date: 1 January 2013.
| | | | |
| |INTRODUCTION | | |
IFRS 12 Disclosure of Interests in Other Undertakings applies to undertakings that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured undertaking.
IFRS 12 brings together and upgrades the disclosures required for subsidiaries, joint ventures and associates previously in IAS 27, 28 and 31 and introduces disclosures for unconsolidated structured undertakings.
Reasons for issuing IFRS 12
To improve the disclosure of a reporting undertaking's interests in other undertakings to help identify the profit or loss and cash flows available to the reporting undertaking and determine the value of a current, or future, investment in the reporting undertaking.
To provide better information about the subsidiaries that are consolidated, as well as an undertaking's interests in joint arrangements and associates that are not consolidated, but with which the undertaking has a special relationship.
The global financial crisis that started in 2007 also highlighted a lack of transparency about the risks to which a reporting undertaking was exposed from its involvement with structured undertakings, including those that it had sponsored.
A combined disclosure standard for interests in other undertakings would make it easier to understand and apply the disclosure requirements for subsidiaries, joint ventures, associates and unconsolidated structured undertakings.
Definitions
| | | | |
| |income from a structured |Income from a structured undertaking includes, but is not limited to, recurring and non-recurring fees, | |
| |undertaking |interest, dividends, gains or losses on the remeasurement or derecognition of interests in structured | |
| | |undertakings and gains or losses from the transfer of assets and liabilities to the structured | |
| | |undertaking. | |
| |interest in another |An interest in another undertaking refers to contractual and non-contractual involvement that exposes an | |
| |undertaking |undertaking to variability of returns from the performance of the other undertaking. An interest in | |
| | |another undertaking can be evidenced by, but is not limited to, the holding of equity or debt instruments | |
| | |as well as other forms of involvement such as the provision of funding, liquidity support, credit | |
| | |enhancement and guarantees. It includes the means by which an undertaking has control or joint control of,| |
| | |or significant influence over, another undertaking. An undertaking does not necessarily have an interest | |
| | |in another undertaking solely because of a typical customer-supplier relationship. | |
| | | | |
| | |IFRS 10 explains variability of returns. | |
| |structured undertaking |An undertaking that has been designed so that voting or similar rights are not the dominant factor in | |
| | |deciding who controls the undertaking, such as when any voting rights relate to administrative tasks only | |
| | |and the relevant activities are directed by means of contractual arrangements. | |
| | | | |
The following terms are defined in IAS 27, IAS 28, IFRS 10 and IFRS 11:
● associate
● consolidated financial statements
● control of an undertaking
● equity method
● group
● joint arrangement
● joint control
● joint operation
● joint venture
● non-controlling interest
● parent
● protective rights
● relevant activities
● separate financial statements
● separate vehicle
● significant influence
● subsidiary.
General requirements
IFRS 12 establishes disclosure objectives according to which an undertaking discloses information that enables users of its financial statements
(1) to understand:
(i) the significant judgements and assumptions (and changes to those judgements and assumptions) made in determining the nature of its interest in another undertaking or arrangement (control, joint control or significant influence), and in determining the type of joint arrangement in which it has an interest; and
(ii) the interest that non-controlling interests have in the group's activities and cash flows; and
(2) to evaluate:
(i) the nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities, of the group;
(ii) the nature of, and changes in, the risks associated with its interests in consolidated structured undertakings;
(iii) the nature and extent of its interests in unconsolidated structured undertakings, and the nature of, and changes in, the risks associated with those interests;
(iv) the nature, extent and financial effects of its interests in joint arrangements and associates, and the nature of the risks associated with those interests;
(v) the consequences of changes in a parent's ownership interest in a subsidiary that do not result in a loss of control; and
(vi) the consequences of losing control of a subsidiary during the reporting period.
IFRS 12 specifies minimum disclosures that an undertaking must provide. If these are not sufficient to meet the disclosure objective, an undertaking discloses whatever additional information is necessary to meet that objective.
Objective
The objective of IFRS 12 is to require an undertaking to disclose information that enables users of its financial statements to evaluate:
(a) the nature of, and risks associated with, its interests in other undertakings; and
(b) the effects of those interests on its financial position, financial performance and cash flows.
Meeting the objective
An undertaking shall disclose:
(1) the significant judgements and assumptions it has made in determining the nature of its interest in another undertaking or arrangement, and in determining the type of joint arrangement in which it has an interest; and
(2) information about its interests in:
(i) subsidiaries;
(ii) joint arrangements and associates; and
(iii) structured undertakings that are not controlled by the undertaking (unconsolidated structured undertakings).
If the disclosures required by IFRS 12, together with disclosures required by other IFRSs, do not meet the objective, an undertaking shall disclose whatever additional information is necessary to meet that objective.
IFRS 12 requires an undertaking to consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the requirements in IFRS 12. An undertaking shall aggregate, or disaggregate, disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail, or the aggregation of items that have different characteristics.
Scope
IFRS 12 shall be applied by an undertaking that has an interest in any of the following:
(i) subsidiaries
(ii) joint arrangements (joint operations or joint ventures)
(iii) associates
(iv) unconsolidated structured undertakings.
IFRS 12 does not apply to:
(1) IAS 19 post-employment benefit plans, or other long-term employee benefit plans.
(2) an undertaking's separate financial statements to which IAS 27 applies. However, if an undertaking has interests in unconsolidated structured undertakings and prepares separate financial statements as its only financial statements, it shall apply IFRS 12 when preparing those separate financial statements.
(3) an interest held by an undertaking that participates in, but does not have joint control of, a joint arrangement unless that interest results in significant influence over the arrangement or is an interest in a structured undertaking.
(4) an interest in another undertaking that is accounted for in accordance with IFRS 9.
However, an undertaking shall apply IFRS 12:
(i) when that interest is an interest in an associate, or a joint venture that, is measured at fair value through profit or loss
(see IAS 28); or
(ii) when that interest is an interest in an unconsolidated structured undertaking.
Investment Entities
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), issued in October 2012, introduced an exception to the principle that all subsidiaries shall be consolidated.
The amendments define an investment undertaking and require a parent that is an investment undertaking to measure its investments in particular subsidiaries at fair value through profit or loss in accordance with IFRS 9 (or IAS 39) instead of consolidating those subsidiaries in its consolidated and separate financial statements. In addition, the amendments introduce new
disclosure requirements related to investment entities in IFRS 12.
Determining whether an undertaking is an investment undertaking
IFRS 10
A parent shall determine whether it is an investment undertaking. An investment undertaking is an undertaking that:
(i) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
(ii) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment
income, or both; and
(iii) measures and evaluates the performance of substantially all of its
investments on a fair value basis.
In assessing whether it meets the definition above, an undertaking shall consider whether it has the following typical characteristics
of an investment undertaking:
(i) it has more than one investment;
(ii) it has more than one investor;
(iii) it has investors that are not related parties of the undertaking; and
(iv) it has ownership interests in the form of equity or similar interests.
The absence of any of these typical characteristics does not necessarily disqualify an undertaking from being classified as an investment undertaking. An investment undertaking that does not have all of these typical characteristics provides additional disclosure required by IFRS 12.
If an investment undertaking has a subsidiary that provides services that relate to the investment undertaking’s investment activities, it shall consolidate that subsidiary in accordance with IFRS 12 and apply the requirements of IFRS 3 to the acquisition of any such subsidiary.
IFRS 12
Investment entity status
When a parent determines that it is an investment entity in accordance with IFRS 10, the investment entity shall disclose information
about significant judgements and assumptions it has made in determining that it is an investment entity. If the investment entity does not have one or more of the typical characteristics of an investment entity (see IFRS 10), it shall disclose its reasons for concluding that it is nevertheless an investment entity.
When an entity becomes, or ceases to be, an investment entity, it shall disclose the change of investment entity status and the reasons for the change. In addition, an entity that becomes an investment entity shall disclose the effect of the change of status on the financial statements for the period presented, including:
(i) the total fair value, as of the date of change of status, of the subsidiaries that cease to be consolidated;
(ii) the total gain or loss, if any, calculated in accordance with paragraph B101 of IFRS 10; and
(iii) the line item(s) in profit or loss in which the gain or loss is recognised (if not presented separately).
Interests in unconsolidated subsidiaries (investment entities)
An investment entity that, in accordance with IFRS 10, is required to apply the exception to consolidation and instead account for its
investment in a subsidiary at fair value through profit or loss shall disclose that fact.
For each unconsolidated subsidiary, an investment entity shall disclose:
(i) the subsidiary’s name;
(ii) the principal place of business (and country of incorporation if different from the principal place of business) of the subsidiary;
and
(iii) the proportion of ownership interest held by the investment entity and, if different, the proportion of voting rights held.
If an investment entity is the parent of another investment entity, the parent shall also provide the disclosures for investments that are controlled by its investment entity subsidiary. The disclosure may be provided by including, in the financial statements of the parent, the
financial statements of the subsidiary (or subsidiaries) that contain the above information.
An investment entity shall disclose:
(i) the nature and extent of any significant restrictions (eg resulting from borrowing arrangements, regulatory requirements or
contractual arrangements) on the ability of an unconsolidated subsidiary to transfer funds to the investment entity in the form of
cash dividends or to repay loans or advances made to the unconsolidated subsidiary by the investment entity; and
(ii) any current commitments or intentions to provide financial or other support to an unconsolidated subsidiary, including
commitments or intentions to assist the subsidiary in obtaining financial support.
If, during the reporting period, an investment entity or any of its subsidiaries has, without having a contractual obligation to do so,
provided financial or other support to an unconsolidated subsidiary (eg purchasing assets of, or instruments issued by, the subsidiary or assisting the subsidiary in obtaining financial support), the entity shall disclose:
(i) the type and amount of support provided to each unconsolidated
subsidiary; and
(ii) the reasons for providing the support.
An investment entity shall disclose the terms of any contractual arrangements that could require the entity or its unconsolidated
subsidiaries to provide financial support to an unconsolidated, controlled, structured entity, including events or circumstances that
could expose the reporting entity to a loss (eg liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or to provide financial support).
If during the reporting period an investment entity or any of its unconsolidated subsidiaries has, without having a contractual obligation
to do so, provided financial or other support to an unconsolidated, structured entity that the investment entity did not control, and if that
provision of support resulted in the investment entity controlling the structured entity, the investment entity shall disclose an explanation of the relevant factors in reaching the decision to provide that support.
IAS 27
An investment entity that is required, throughout the current period and all comparative periods presented, to apply the exception to
consolidation for all of its subsidiaries in accordance with IFRS 10 presents separate financial statements as its only financial
statements.
If a parent is required, in accordance with IFRS 10, to measure its investment in a subsidiary at fair value through profit or loss
in accordance with IFRS 9, it shall also account for its investment in a subsidiary in the same way in its separate financial statements.
Significant judgements and assumptions
An undertaking shall disclose information about significant judgements and assumptions it has made (and changes to those judgements and assumptions) in determining:
(i) that it has control of another undertaking: an investee as described in IFRS 10;
(ii) that it has joint control of an arrangement, or significant influence over another undertaking; and
(iii) the type of joint arrangement (ie joint operation or joint venture) when the arrangement has been structured through a separate vehicle.
The significant judgements and assumptions include those made by the undertaking when changes in facts and circumstances are such that the conclusion about whether it has control, joint control or significant influence changes during the reporting period.
EXAMPLES: SIGNIFICANT JUDGEMENTS AND ASSUMPTIONS
made in determining that:
(i) it does not control another undertaking, even though it holds more than half of the voting rights of the other undertaking.
(ii) it controls another undertaking, even though it holds less than half of the voting rights of the other undertaking.
(iii) it is an agent, or a principal (see IFRS 10).
(iv) it does not have significant influence, even though it holds 20 per cent or more of the voting rights of another undertaking.
(v) it has significant influence, even though it holds less than 20 per cent of the voting rights of another undertaking.
Interests in subsidiaries
An undertaking shall disclose information that enables users of its consolidated financial statements
(1) to understand:
(i) the composition of the group; and
(ii) the interest that non-controlling interests have in the group's activities and cash flows; and
(2) to evaluate:
(i) the nature and extent of significant restrictions on its ability to access, or use, assets, and settle liabilities, of the group;
(ii) the nature of, and changes in, the risks associated with its interests in consolidated structured undertakings;
(iii) the consequences of changes in its ownership interest in a subsidiary that do not result in a loss of control; and
(iv) the consequences of losing control of a subsidiary during the reporting period.
When the financial statements of a subsidiary used in consolidation are as of a date or for a period that is different from that of the consolidated financial statements (see IFRS 10), an undertaking shall disclose:
(i) the date of the end of the reporting period of the financial statements of that subsidiary; and
(ii) the reason for using a different date or period.
The interest that non-controlling interests (minority interests) have in the group's activities and cash flows
An undertaking shall disclose for each of its subsidiaries that have non-controlling interests that are material to the reporting undertaking:
(i) the name of the subsidiary.
(ii) its principal place of business (and country of incorporation if different from the principal place of business).
(iii) the proportion of ownership interests held by non-controlling interests.
(iv) the proportion of voting rights held by non-controlling interests, if different.
(v) the profit or loss allocated to non-controlling interests of the subsidiary during the reporting period.
(vi) accumulated non-controlling interests of the subsidiary at the end of the reporting period.
(vii) summarised financial information about the subsidiary.
The nature and extent of significant restrictions
An undertaking shall disclose:
(1) significant restrictions (such as statutory, contractual and regulatory restrictions) on its ability to access, or use, the assets and settle the liabilities of the group, such as:
(i) those that restrict the ability of a parent or its subsidiaries to transfer cash or other assets to (or from) other undertakings within the group.
(ii) guarantees or other requirements that may restrict dividends and other capital distributions being paid, or loans and advances being made or repaid, to (or from) other undertakings within the group.
(2) the nature and extent to which protective rights of non-controlling interests can significantly restrict the undertaking's ability to access or use the assets and settle the liabilities of the group.
EXAMPLE: PROTECTIVE RIGHTS OF NON-CONTROLLING INTERESTS
When a parent is obliged to settle liabilities of a subsidiary before settling its own liabilities, or approval of non-controlling interests is required either to access the assets, or to settle the liabilities, of a subsidiary.
(3) the carrying amounts in the consolidated financial statements of the assets and liabilities to which those restrictions apply.
Nature of the risks associated with an undertaking's interests in consolidated structured undertakings
An undertaking shall disclose the terms of any contractual arrangements that could require the parent (or its subsidiaries) to provide financial support to a consolidated structured undertaking, including events or circumstances that could expose the reporting undertaking to a loss.
EXAMPLES: FINANCIAL SUPPORT TO CONSOLIDATED STRUCTURED UNDERTAKING
Provide liquidity, guarantees, details of credit rating triggers associated with obligations to purchase assets of the structured undertaking (or provide extra collateral), or provide financial support. Such support may be a legal requirement, a regulatory requirement of the central bank, an agreement with non-controlling interests, or to protect the parent’s reputation. (Damage to its reputation could result in clients and markets refusing to do further business with the parent and its subsidiaries.)
If during the reporting period, a parent or any of its subsidiaries has, without having a contractual obligation to do so, provided financial, or other, support to a consolidated structured undertaking (such as purchasing assets of, or instruments issued by, the structured undertaking), the undertaking shall disclose:
(i) the type and amount of support provided, including situations in which the parent (or its subsidiaries) assisted the structured undertaking in obtaining financial support; and
(ii) the reasons for providing the support.
If during the reporting period a parent (or any of its subsidiaries) has, without having a contractual obligation to do so, provided financial or other support to a previously unconsolidated structured undertaking and that provision of support resulted in the undertaking controlling the structured undertaking, the undertaking shall disclose an explanation of the relevant factors in reaching that decision.
An undertaking shall disclose any current intentions to provide financial or other support to a consolidated structured undertaking, including intentions to assist in obtaining financial support for the structured undertaking.
Consequences of changes in a parent's ownership interest in a subsidiary that do not result in a loss of control
An undertaking shall present a schedule that shows the effects on the equity attributable to owners of the parent of any changes in its ownership interest in a subsidiary that do not result in a loss of control.
Consequences of losing control of a subsidiary during the reporting period
An undertaking shall disclose the gain or loss, if any, calculated in IFRS 10, and:
(i) the portion of that gain, or loss, attributable to measuring any investment retained in the former subsidiary at its fair value at the date when control is lost; and
(ii) the line item(s) in profit or loss in which the gain, or loss, is recorded (if not presented separately).
Interests in joint arrangements and associates
An undertaking shall disclose information that enables users to evaluate:
(i) the nature, extent and financial effects of its interests in joint arrangements and associates, including the nature and effects of its contractual relationship with the other investors with joint control of, or significant influence over, joint arrangements and associates; and
(ii) the nature of, and changes in, the risks associated with its interests in joint ventures and associates.
Nature, extent and financial effects of an undertaking's interests in joint arrangements and associates.
An undertaking shall disclose:
(1) for each joint arrangement and associate (that is material to the reporting undertaking):
(i) the name of the joint arrangement, or associate.
(ii) the nature of the undertaking's relationship with the joint arrangement or associate (by, for example, describing the nature of the activities of the joint arrangement, or associate, and whether they are strategic to the undertaking's activities).
(iii) the principal place of business (and country of incorporation, if applicable and different from the principal place of business) of the joint arrangement or associate.
(iv) the proportion of ownership interest or participating share held by the undertaking and, if different, the proportion of voting rights held (if applicable).
(2) for each joint venture and associate (that is material to the reporting undertaking):
(i) whether the investment in the joint venture or associate is measured using the equity method or at fair value.
(ii) summarised financial information about the joint venture or associate.
(iii) if the joint venture or associate is accounted for using the equity method, the fair value of its investment in the joint venture or associate, if there is a quoted market price for the investment.
(3) financial information about the undertaking's investments in joint ventures and associates that are not individually material:
(i) in aggregate for all individually immaterial joint ventures and, separately,
(ii) in aggregate for all individually immaterial associates.
An undertaking shall also disclose:
(1) the nature and extent of any significant restrictions (such as resulting from borrowing arrangements, regulatory requirements or contractual arrangements between investors with joint control of, or significant influence over, a joint venture or, an associate) on the ability of joint ventures or associates to transfer funds to the undertaking in the form of cash dividends, or to repay loans or advances made by the undertaking.
(2) when the financial statements of a joint venture, or associate, used in applying the equity method are as of a date, or for a period, that is different from that of the undertaking:
(i) the date of the end of the reporting period of the financial statements of that joint venture or associate; and
(ii) the reason for using a different date or period.
(3) the unrecognised share of losses of a joint venture or associate, both for the reporting period and cumulatively, if the undertaking has stopped recording its share of losses of the joint venture, or associate, when applying the equity method.
Risks associated with an undertaking's interests in joint ventures and associates
An undertaking shall disclose:
(i) commitments that it has relating to its joint ventures, separately from the amount of other commitments.
(ii) in accordance with IAS 37, unless the probability of loss is remote, contingent liabilities incurred relating to its interests in joint ventures or associates (including its share of contingent liabilities incurred jointly with other investors with joint control of, or significant influence over, the joint ventures or associates), separately from the amount of other contingent liabilities.
Interests in unconsolidated structured undertakings
An undertaking shall disclose information that enables users of its financial statements:
(i) to understand the nature and extent of its interests in unconsolidated structured undertakings; and
(ii) to evaluate the nature of, and changes in, the risks associated with its interests in unconsolidated structured undertakings.
Unconsolidated structured undertakings
This is IFRS 12’s intent to secure disclosure the nature and risks of off-balance-sheet and derecognised items, where the reporting company does not have control, joint control or significant influence. Such items would escape reporting under IAS 28, 31, IFRS 10 and 11.
Structured undertakings are defined above as undertakings that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the undertaking, such as when any voting rights relate to administrative tasks only, and the relevant activities are directed by means of contractual arrangements.
The term Interests In is defined as contractual and non-contractual involvement that exposes the reporting undertaking to variability of returns from the performance of the other undertaking. There may be an investment in shares, and/or debt, of the undertaking (or none at all!).
There may be a contract, or the undertaking may have been set-up to run on ‘autopilot’ requiring no further involvement of the reporting company. The purpose may be to collect revenue, or to transfer liabilities or risk.
Revenue collection would be evidenced by the revenue stream. Transfers of liabilities and risks may be invisible, either as there are no claims, or the claims have not yet come. Once the transfer has been made, there may be no further profit or loss anticipated, and no apparent Interests In the undertaking.
The global crisis saw many such claims and liabilities hit banks and companies. Reference to their earlier financial statements gave no indication of the vulnerability to these claims. Robert Maxwell (UK 1990’s) and Enron (US 2000’s) are two of the most documented of the use of complex corporate structures, including offshore vehicles, used to hide liabilities. Both crashed.
IFRS 12 (see below) includes sponsored (undefined) as an indication of Interests In. One can anticipate avoidance by claims not to be the sponsor. In some cases, a definition of Interests In might be risks from…
Nature of interests
An undertaking shall disclose qualitative and quantitative information about its interests in unconsolidated structured undertakings, including, but not limited to, the nature, purpose, size and activities of the structured undertaking and how the structured undertaking is financed.
If an undertaking has sponsored an unconsolidated structured undertaking for which it does not provide information (because it does not have an interest in the undertaking at the reporting date), the undertaking shall disclose:
(i) how it has determined which structured undertakings it has sponsored;
(ii) income from those structured undertakings during the reporting period, including a description of the types of income presented; and
(iii) the carrying amount (at the time of transfer) of all assets transferred to those structured undertakings during the reporting period.
An undertaking shall present the information in tabular, or more appropriate, format, and classify its sponsoring activities into relevant categories.
Aggregation
It is necessary to strike a balance between burdening financial statements with excessive detail that may not assist users and obscuring information as a result of too much aggregation.
An undertaking may aggregate the disclosures required by IFRS 12 for interests in similar undertakings, if aggregation is consistent with the disclosure objective, and does not obscure the information provided. An undertaking shall disclose how it has aggregated its interests in similar undertakings.
An undertaking shall present information separately for interests in:
(i) subsidiaries;
(ii) joint ventures;
(iii) joint operations;
(iv) associates; and
(v) unconsolidated structured undertakings.
In determining whether to aggregate information, an undertaking shall consider quantitative and qualitative information about the different risk and return characteristics of each undertaking and the significance of each such undertaking to the reporting undertaking. The undertaking shall clearly explain to users of financial statements the nature and extent of its interests in those other undertakings.
Examples of aggregation levels within the classes of undertakings that might be appropriate are:
(i) nature of activities (such as a research and development undertaking, a revolving credit card securitisation undertaking).
(ii) industry classification.
(iii) geography (country or region).
Nature of risks
An undertaking shall disclose in tabular, or more appropriate, format, a summary of:
(i) the carrying amounts of the assets and liabilities recorded in its financial statements relating to its interests in unconsolidated structured undertakings.
(ii) the line items in the statement of financial position in which those assets and liabilities are recorded.
(iii) the amount that best represents the undertaking's maximum exposure to loss from its interests in unconsolidated structured undertakings, including how the maximum exposure to loss is determined. If an undertaking cannot quantify its maximum exposure to loss from its interests in unconsolidated structured undertakings, it shall disclose that fact and the reasons.
(iv) a comparison of the carrying amounts of the assets and liabilities of the undertaking that relate to its interests in unconsolidated structured undertakings and the undertaking's maximum exposure to loss from those undertakings.
If, during the reporting period, an undertaking has, without having a contractual obligation to do so, provided financial or other support to an unconsolidated structured undertaking in which it previously had or currently has an interest (for example, purchasing assets of, or instruments issued by, the structured undertaking), the undertaking shall disclose:
(i) the type and amount of support provided, including situations in which the undertaking assisted the structured undertaking in obtaining financial support; and
(ii) the reasons for providing the support.
An undertaking shall disclose any current intentions to provide financial or other support to an unconsolidated structured undertaking, including intentions to assist the structured undertaking in obtaining financial support.
An interest in another undertaking refers to contractual and non-contractual involvement that exposes the reporting undertaking to variability of returns from the performance of the other undertaking.
Consideration of the purpose and design of the other undertaking may help the reporting undertaking when assessing whether it has an interest in that undertaking and, therefore, whether it is required to provide the disclosures in IFRS 12. That assessment shall include consideration of the risks that the other undertaking was designed to create and the risks the other undertaking was designed to pass on to the reporting undertaking and other parties.
A reporting undertaking is typically exposed to variability of returns from the performance of another undertaking by holding instruments (such as equity or debt instruments issued by the other undertaking) or having another involvement that absorbs variability.
EXAMPLE: CREDIT DEFAULT SWAPS (similar to credit risk insurance)
A structured undertaking holds a loan portfolio. It obtains a credit default swap from another undertaking (the reporting undertaking) to protect itself from the default of interest and principal payments on the loans. The reporting undertaking has involvement that exposes it to variability of returns from the performance of the structured undertaking as the credit default swap absorbs variability of returns of the structured undertaking.
Some instruments are designed to transfer risk from a reporting undertaking to another undertaking. Such instruments create variability of returns for the other undertaking but do not typically expose the reporting undertaking to variability of returns from the performance of the other undertaking.
EXAMPLE: RISK TRANSFER
A structured undertaking is established to provide investment opportunities for investors who wish to have exposure to undertaking M's credit risk (undertaking M is unrelated to any party involved in the arrangement).
The structured undertaking obtains funding by issuing to those investors notes that are linked to undertaking M's credit risk (credit-linked notes) and uses the proceeds to invest in a portfolio of risk-free financial assets.
The structured undertaking obtains exposure to undertaking M's credit risk by entering into a credit default swap (CDS) with a swap counterparty. The CDS passes undertaking M's credit risk to the structured undertaking in return for a receiving a fee from by the swap counterparty.
The investors in the structured undertaking receive a higher return that reflects both the structured undertaking's return from its asset portfolio and the CDS fee.
A structured undertaking often has some, or all, of the following features or attributes:
(i) restricted activities.
(ii) a narrow and well-defined objective, such as to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an undertaking, or provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured undertaking to investors.
(iii) insufficient equity to permit the structured undertaking to finance its activities without subordinated financial support.
(iv) financing in the form of multiple contractually- linked instruments to investors that create concentrations of credit, or other, risks (tranches).
Examples of undertakings that are regarded as structured undertakings include, but are not limited to:
(i) securitisation vehicles.
(ii) asset-backed financings.
(iii) some investment funds.
An undertaking that is controlled by voting rights is not a structured undertaking simply because, for example, it receives funding from third parties following a restructuring.
Summarised financial information for subsidiaries, joint ventures and associates
For each subsidiary that has non-controlling interests that are material to the reporting undertaking, an undertaking shall disclose:
(i) dividends paid to non-controlling interests.
(ii) summarised financial information about the assets, liabilities, profit or loss and cash flows of the subsidiary that enables users to understand the interest that non-controlling interests have in the group's activities and cash flows. That information might include but is not limited to, for example, current assets, non-current assets, current liabilities, non-current liabilities, revenue, profit or loss and total comprehensive income.
The summarised financial information shall be the amounts before inter-company eliminations.
For each joint venture and associate that is material to the reporting undertaking, an undertaking shall disclose:
(1) dividends received from the joint venture, or associate.
(2) summarised financial information for the joint venture, or associate including, but not necessarily limited to:
(i) current assets.
(ii) non-current assets.
(iii) current liabilities.
(iv) non-current liabilities.
(v) revenue.
(vi) profit or loss from continuing operations.
(vii) post-tax profit or loss from discontinued operations.
(viii) other comprehensive income.
(ix) total comprehensive income.
In addition to the summarised financial information, an undertaking shall disclose for each joint venture that is material to the reporting undertaking the amount of:
(i) cash and cash equivalents included in current assets.
(ii) current financial liabilities (excluding trade and other payables and provisions) included in current liabilities.
(iii) non-current financial liabilities (excluding trade and other payables and provisions) included non-current liabilities.
(iv) depreciation and amortisation.
(v) interest income.
(vi) interest expense.
(vii) income tax expense or income.
The summarised financial information shall be the amounts included in the IFRS financial statements of the joint venture, or associate (and not the undertaking's share of those amounts). If the undertaking accounts for its interest in the joint venture or associate using the equity method:
(i) the amounts included in the IFRS financial statements of the joint venture, or associate, shall be adjusted to reflect adjustments made by the undertaking when using the equity method, such as fair value adjustments made at the time of acquisition and adjustments for differences in accounting policies.
(ii) the undertaking shall provide a reconciliation of the summarised financial information presented to the carrying amount of its interest in the joint venture, or associate.
An undertaking may present the summarised financial information on the basis of the joint venture's or associate's financial statements if:
(i) the undertaking measures its interest in the joint venture, or associate at fair value (see IAS 28); and
(ii) the joint venture, or associate, does not prepare IFRS financial statements and preparation on that basis would be impracticable or cause undue cost.
The undertaking shall disclose the basis on which the summarised financial information has been prepared.
An undertaking shall disclose, in aggregate, the carrying amount of its interests in all individually immaterial joint ventures or associates that are accounted for using the equity method. An undertaking shall also disclose separately the aggregate amount of its share of those joint ventures' or associates':
(i) profit or loss from continuing operations.
(ii) post-tax profit or loss from discontinued operations.
(iii) other comprehensive income.
(iv) total comprehensive income.
An undertaking provides the disclosures separately for joint ventures and associates.
When an undertaking's interest in a subsidiary, a joint venture, or an associate (or a portion of its interest in a joint venture, or an associate) is classified as held for sale under IFRS 5, the undertaking is not required to disclose summarised financial information for that subsidiary, joint venture or associate.
Commitments for joint ventures
An undertaking shall disclose total commitments it has made but not recognised at the reporting date (including its share of commitments made jointly with other investors with joint control of a joint venture) relating to its interests in joint ventures. Commitments are those that may give rise to a future outflow of cash, or other resources.
EXAMPLES: UNRECOGNISED COMMITMENTS
Unrecognised commitments that may give rise to a future outflow of cash, or other resources, include:
(1) unrecognised commitments to contribute funding, or resources, as a result of, for example:
(i) the constitution, or acquisition, agreements of a joint venture (that, for example, require an undertaking to contribute funds over a specific period).
(ii) capital-intensive projects undertaken by a joint venture.
(iii) unconditional purchase obligations, comprising procurement of equipment, inventory or services that an undertaking is committed to purchasing from, or on behalf of, a joint venture.
(iv) unrecognised commitments to provide loans, or other financial support, to a joint venture.
(v) unrecognised commitments to contribute resources to a joint venture, such as assets or services.
(vi) other non-cancellable unrecognised commitments relating to a joint venture.
(2) unrecognised commitments to acquire another party's ownership interest (or a portion of that ownership interest) in a joint
venture if a particular event occurs or does not occur in the future.
IFRS WORKBOOKS (History and Copyright)
(1 million downloaded)
This is the latest version of the legendary workbooks in Russian and English produced by 3 TACIS projects, sponsored by the European Union (2003-2009) and led by PricewaterhouseCoopers. They have also appeared on the website of the Ministry of Finance of the Russian Federation.
The workbooks cover all standards of IFRS based accounting. They are intended to be practical self-instruction aids that professional accountants can use to upgrade their knowledge, understanding and skills.
Each workbook is a self-standing short course designed for approximately three hours of study. Although the workbooks are part of a series, each one is independent of the others. Each workbook is a combination of Information, Examples, Self-Test Questions and Answers. A basic knowledge of accounting is assumed, but if any additional knowledge is required this is mentioned at the beginning of the section.
Having written the first three editions, we continue to update them and provide them to you free to download. Please tell your friends and colleagues. Relating to the first three editions and updated texts, the copyright of the material contained in each workbook belongs to the European Union and according to its policy may be used free of charge for any non-commercial purpose. The copyright and responsibility of later books and the updates are ours. Our copyright policy is the same as that of the European Union.
We wish to especially thank Elizabeth Appraxine (European Union) who administered these TACIS projects, Richard J. Gregson (Partner, PricewaterhouseCoopers) who led the projects and all friends at bankir.ru for hosting the books.
TACIS project partners included Rosexpertiza (Russia), ACCA (UK), Agriconsulting (Italy), FBK (Russia), and European Savings Bank Group (Brussels).
-----------------------
hmVhmV5?B*[pic]CJ OJ[?]QJ[?]\?^J[?]aJ mH phsH .h3Kh„_¡5?;?CJ$OJ[?]QJ[?]^J[?]aJ$mH sH h„_¡5?;?CJaJ jÒhŸUÝh„_¡U[pic]mHnHu[pic]h„_¡5?CJOJQJ^JaJ#h
ˆh„_¡5?CJOJQJ^JaJh„_¡!jh¦Pxh„_¡OJ[?]QJ[?]U[pic]^J[?]jh„_¡U[pic]mHnHu[pic]h69~OJ[?]QJ[?]^J[?]mH sH hü%OJ[?]QJ[?]^J[?]mH s INCLUDEPICTURE "" \* MERGEFORMATINET [pic]
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.