Last update 10/12/2019
Interest in other entities – For the purpose of IFRS 12 Disclosure of Interest in Other Entities, an interest in another entity refers to contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. An interest in another entity 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 entity has control or joint control of, or significant influence over, another entity. An entity does not necessarily have an interest in another entity solely because of a typical customer-supplier relationship.
IFRS 12 contains the disclosure requirements for IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IAS 28 Investments in Associates and Joint Ventures. In addition it includes disclosure requirements in respect of unconsolidated structured entities.
Key definitions from IFRS 12
|
Interest in other entities |
Refers to contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. An interest in another entity 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 entity has control or joint control of, or significant influence over, another entity. An entity does not necessarily have an interest in another entity solely because of a typical customer supplier relationship. |
|
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 Assumptions and Judgment
The reporting entity is required to disclose major assumptions and judgments used by the entity along with any changes in such assumptions it had made in identifying:
- Its control over another entity as defined in IFRS 10 Consolidated Financial Statements
- Its joint control of an arrangement
- Its significant influence over another entity
- The nature of joint arrangement (i.e. joint venture or joint operation)
The reporting entity is also required to disclose the details about the following circumstances:
- When it does not have control over the investee even if it owns more than 50% voting rights of the other entity.
- When it controls the investee even if it owns less than 50% voting rights of the other entity
- Either it is an agent or a principal as defined in IFRS 10
- It has significant influence over the investee even if it owns less than 20% voting rights of another entity
- When it does not have significant influence over the investee even if it owns 20% or more voting rights of another entity
Aggregation
The actual disclosures for all investments in the above mentioned IFRS entities is a balancing act of aggregation and disaggregation, in IFRS 12 it is emphasised that it is 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. Interest in other entities
An entity shall present information separately for the following interests (i.e. aggregation is not allowed): Interest in other entities
- investments in subsidiaries, Interest in other entities
- investments in joint arrangements: Interest in other entities
- investments in joint operations, and Interest in other entities
- investments in joint ventures, Interest in other entities
- investments in associates, and Interest in other entities
- investments in unconsolidated structured entities. Interest in other entities
An entity shall consider the following when determining whether to aggregate information: Interest in other entities
- Quantitative and qualitative information about the risk and return characteristics of each entity considered for possible aggregation; and
- The significance of each entity to the reporting entity. Interest in other entities
Examples of aggregation levels that may be appropriate are:
- Nature of activities. Interest in other entities
- Industry classification. Interest in other entities
- Geography. Interest in other entities
In principal one could say, the disclosures for investments in other entities are sufficiently detailed to allow a third party analyst to modify major elements in the financial statements (for example, total assets, net assets, operating profit, net result after tax and cash flows from operating activities) including the investments in the above-mentioned interests.
IFRS 12 B7–B9 provide further information about interests in other entities. Interest in other entities
Paragraphs B55–B57 of IFRS 10 explain variability of returns. Interest in other entities
See also: https://www.ifrs.org
