IFRS 12: Disclosure of interests in other entities
What a group must disclose about its subsidiaries, joint arrangements, associates and unconsolidated structured entities.
ACCA exams this helps with: SBR Strategic Business Reporting See the ACCA map
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What it is: The disclosure partner of IFRS 10, IFRS 11 and IAS 28. It makes a group explain its interests in other entities and the risks that come with them.
The key idea: readers should understand what the group has invested in, the judgements made (for example, why 45% is treated as control), and how those interests affect the group’s position, performance and cash flows.
Example. A group controls a company although it owns only 45% of the votes. It must explain the judgement that led to treating it as a subsidiary.
Key words
- Interest in another entity
- Involvement, contractual or not, that exposes the entity to variability of returns from the other entity’s performance.Example: Shares, loans, guarantees or funding commitments.
- Structured entity
- An entity designed so that voting rights are not the dominant factor in deciding who controls it (for example, its activities are directed by contracts).Example: A special purpose vehicle set up to securitise loans.
- Material NCI
- A non-controlling interest large enough to matter to users; triggers extra disclosures for that subsidiary.Example: A 40% outside interest in a big overseas subsidiary.
- Significant judgements
- The judgements and assumptions made in deciding whether there is control, joint control or significant influence.Example: Treating a 45% holding as control because the other shareholders are widely dispersed.
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Objective
Disclose information that helps users evaluate the nature of, and risks associated with, interests in other entities, and their effects on financial position, performance and cash flows.
Main disclosures
| Area | Disclose |
|---|---|
| Significant judgements and assumptions | How control, joint control or significant influence was decided, especially when it differs from the voting share (for example, control with less than 50%, or no control with more than 50%), and the type of joint arrangement. |
| Subsidiaries | Composition of the group. For each subsidiary with material NCI: name, place of business, NCI ownership %, profit allocated to NCI, accumulated NCI, dividends paid to NCI and summarised financial information. Significant restrictions on using assets or settling liabilities. Changes in ownership without loss of control, and any gain or loss on losing control. |
| Joint arrangements and associates | Name, nature of relationship, place of business, ownership %, measurement method, summarised financial information, fair value if quoted, commitments and contingent liabilities. |
| Unconsolidated structured entities | Nature, purpose, size and activities; carrying amounts of assets and liabilities relating to them; the maximum exposure to loss; and any support given. |
IFRS 12 doesn’t change recognition or measurement. Interests classified as held for sale follow IFRS 5 for most disclosures.
Worked example
Group H. H owns 45% of S. The other 55% is held by thousands of small shareholders, none with more than 1%, and they rarely vote. H concludes it has control and consolidates S. S has an NCI of 55%, which is material.
H discloses: the judgement that it controls S despite holding less than half the votes and why; S’s name and country; the NCI’s 55% share; the profit allocated to the NCI and the accumulated NCI at the year end; dividends paid to the NCI; and a summary of S’s current and non-current assets and liabilities, revenue, profit and cash flows.
Practice questions
Type or choose your answers, then press Check answer. Questions with a New numbers button can be repeated with different figures.