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Significant judgements and assumptions IFRS 12

Significant judgements and assumptions IFRS 12

Significant judgements and assumptions IFRS 12: Information about significant judgements and assumptions (including changes to those judgements and assumptions) made by an entity in determining the following should be disclosed:

  • That it has control of another entity;
  • That it has joint control of an arrangement or significant influence over another entity; and
  • The type of joint arrangement (joint operation or joint venture) when it has been structured through a separate vehicle. Examples of situations that require disclosure The entity:
  • Does not control another entity even though it holds more than half of the voting rights.
  • Controls another entity even though it holds less than half of the voting rights.  Is a principal or an agent.  Does not have a significant influence even though it holds 20% or more of the voting rights.

Significant judgements and assumptions IFRS 12: IFRS 12 requires all disclosures that were previously required by IAS 27 Consolidated Financial Statements, IAS 31 Interest in Joint Ventures and IAS 28 Investment in Associates. In addition, IFRS 12 requires a number of new disclosures and one of the most significant of these is the judgements made by an entity to determine whether it controls another entity.

These changes were introduced by the IASB partly in response to the financial crisis and are intended to improve transparency as to the judgements made in deciding whether or not to consolidate and the financial impact if management reached a different conclusion.

The objective of IFRS 12 as set out in the standard is to require an entity to disclose information that enables users of its financial statements to evaluate:  the nature of, and risks associated with, its interests in other entities.

  • Tthe effects of those interests on its financial position, financial performance and cash flows. To meet this objective, an entity shall disclose:
  • The significant judgements and assumptions it has made in determining:
  • The nature of its interest in another entity or arrangement; – The type of joint arrangement in which it has an interest; – That it meets the definition of an investment entity if applicable; and
  • Information about its interests in: – Subsidiaries; – Joint arrangements and associates; and – Structured entities that are not controlled by the entity.

Significant judgements and assumptions IFRS 12: Aggregation

IFRS 12 emphasises that it’s necessary for financial statement preparers to strike a balance between burdening financial statements with excessive detail that may not assist users of financial statements and obscuring information as a result of too much aggregation. An entity shall present information separately for the following interests.

  • Subsidiaries
  • Joint ventures
  • Joint operations
  • Associates
  • Unconsolidated structured entities.

Significant judgements and assumptions IFRS 12: An entity shall consider the following when determining whether to aggregate information:

  • Quantitative and qualitative information about the risk and return characteristics of each entity considered for possible aggregation.
  • The significance of each entity to the reporting entity.

Examples of aggregation levels that may be appropriate are:

  • Nature of activities.
  • Industry classification.
  • Geography.

Significant judgements and assumptions IFRS 12: Scope

IFRS 12 shall be applied by an entity that has an interest in ANY of the following:

  • Subsidiaries
  • Joint arrangements (joint operations or joint ventures)
  • Associates
  • Unconsolidated structured entities.

Significant judgements and assumptions IFRS 12: IFRS 12 does not apply to:

  • Post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee Benefits applies.
  • An entity’s separate financial statements to which IAS 27 Separate Financial Statements applies.
  • An interest held by an entity that participates in, but does not have joint control or significant influence over a joint arrangement.
  • An interest accounted for in accordance with IFRS 9 Financial Instruments, except for: – Interest in an associate or joint venture measured at fair value through profit or loss in accordance with IAS 28 Investments in Associates and Joint Ventures; or – Interest in an unconsolidated structured entity.

IFRS 12 – effective date IFRS 12 shall be applied for annual periods beginning on or after 1 January 2013. An entity shall apply those amendments made to IFRS 12 with regards to Investment Entities for annual periods beginning on or after 1 January 2014.

Significant judgements and assumptions IFRS 12: Early application is permitted.

Defined terms 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.

Income from structured entity – Income from a structured entity includes, but is not limited to, recurring and non-recurring fees, interest, dividends, gains or losses on the re-measurement or derecognition of interests in structured entities and gains or losses from the transfer of assets and liabilities to the structured entity. Significant judgements and assumptions Information about significant judgements and assumptions (including changes to those judgements and assumptions) made by an entity in determining the following should be disclosed:

  • That it has control of another entity;
  • That it has joint control of an arrangement or significant influence over another entity; and
  • The type of joint arrangement (joint operation or joint venture) when it has been structured through a separate vehicle. Examples of situations that require disclosure The entity:
  • Does not control another entity even though it holds more than half of the voting rights.
  • Controls another entity even though it holds less than half of the voting rights.
  • Is a principal or an agent.
  • Does not have a significant influence even though it holds 20% or more of the voting rights.

Significant judgements and assumptions IFRS 12: Disclosure information required under IFRS 12

Interest in subsidiaries Objective An entity is required to disclose information that enables users of its consolidated financial statements to Understand:  The composition of the group

  • The interest that non-controlling interests have in the group’s activities and cash flows and Evaluate
  • The nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities, of the group.
  • The nature of, and changes in, the risks associated with its interests in consolidated structured entities.
  • The consequences of changes in its ownership interest in a subsidiary that do not result in a loss of control.
  • The consequences of losing control of a subsidiary during the reporting period.

Significant judgements and assumptions IFRS 12

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