IFRS 12 Disclosure of Interests in Other Entities is a consolidated disclosure standard requiring a wide range of disclosures about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated ‘structured entities’.
Objective and scope
The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate: [IFRS 12:1]
- the nature of, and risks associated with, its interests in other entities
- the effects of those interests on its financial position, financial performance and cash flows.
Where the disclosures required by IFRS 12, together with the disclosures required by other IFRSs, do not meet the above objective, an entity is required to disclose whatever additional information is necessary to meet the objective. [IFRS 12:3]
IFRS 12 is required to be applied by an entity that has an interest in any of the following: [IFRS 12:5]
- joint arrangements (joint operations or joint ventures)
- unconsolidated structured entities
Annual Improvements to IFRS Standards 2014–2016 Cycle clarified that the disclosures required in IFRS 12 (except for B10-B16) also apply to interests held for sale and discontinued operations under IFRS 5. [IFRS 12:5A]
IFRS 12 does not apply to certain employee benefit plans, separate financial statements to which IAS 27 Separate Financial Statements apply, certain interests in joint ventures held by an entity that does not share in joint control, and the majority of interests in another entity accounted for following IFRS 9 Financial Instruments. [IFRS 12:6]
An investment entity that prepares financial statements in which all its subsidiaries are measured at fair value through profit or loss presents the disclosures relating to investment entities required by IFRS 12. [IFRS 12:6]
Significant judgements and assumptions
An entity discloses information about significant judgements and assumptions it has made (and changes in those judgements and assumptions) in determining: [IFRS 12:7]
- that it controls another entity
- that it has joint control of an arrangement or significant influence over another entity
- the type of joint arrangement (i.e. joint operation or joint venture) when the arrangement has been structured through a separate vehicle.
Interests in subsidiaries
An entity shall disclose information that enables users of its consolidated financial statements to: [IFRS 12:10]
- understand the composition of the group
- understand the interest that non-controlling interests have in the group’s activities and cash flows
- evaluate the nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities of the group
- evaluate the nature of, and changes in, the risks associated with its interests in consolidated structured entities
- evaluate the consequences of changes in its ownership interest in a subsidiary that do not result in a loss of control
- evaluate the consequences of losing control of a subsidiary during the reporting period.
Interests in unconsolidated subsidiaries
In accordance with IFRS 10 Consolidated Financial Statements, an investment entity is required to apply the exception to consolidation and instead account for its investment in a subsidiary at fair value through profit or loss. [IFRS 10:31].
Where an entity is an investment entity, IFRS 12 requires additional disclosure, including:
- the fact the entity is an investment entity [IFRS 12:19A]
- information about significant judgements and assumptions it has made in determining that it is an investment entity, and specifically where the entity does not have one or more of the ‘typical characteristics of an investment entity [IFRS 12:9A]
- details of subsidiaries that have not been consolidated (name, place of business, ownership interests held) [IFRS 12:19B]
- details of the relationship and certain transactions between the investment entity and the subsidiary (e.g. restrictions on transfer of funds, commitments, support arrangements, contractual arrangements) [IFRS 12: 19D-19G]
- information where an entity becomes, or ceases to be, an investment entity [IFRS 12:9B]
An entity making these disclosures is not required to provide various other disclosures required by IFRS 12 [IFRS 12:21A, IFRS 12:25A].
Interests in joint arrangements and associates
An entity shall disclose information that enables users of its financial statements to evaluate: [IFRS 12:20]
- 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
- the nature of, and changes in, the risks associated with its interests in joint ventures and associates.
Interests in unconsolidated structured entities
An entity shall disclose information that enables users of its financial statements to:
- understand the nature and extent of its interests in unconsolidated structured entities
- evaluate the nature of, and changes in, the risks associated with its interests in unconsolidated structured entities.