Chapter 2: Significant judgements and assumptions

Disclosures regarding significant judgments and assumptions – general

Disclosure is required of the significant judgments and assumptions made by a reporting entity, and any changes to those judgments and assumptions, in determining:

• that it has control of another entity;
• that it has joint control of an arrangement;
• the type of joint arrangement, either a joint venture or joint operation, when the arrangement is structured through a separate vehicle; and
• that it has a significant influence over another entity.

For example, a reporting entity should disclose significant judgments and assumptions made when determining that:

(a) it does not control another entity despite holding more than half of that other entity’s voting rights;

(b) it controls another entity despite holding less than half of that other entity’s voting rights;

(c) it is an agent or a principal;

(d) it does not have significant influence over another entity despite holding 20 percent or more of that other entity’s voting rights; or

(e) it has significant influence over another entity despite holding less than 20 percent of that other entity’s voting rights.

The disclosures required by IFRS 12 are not limited to the five scenarios listed; disclosure is required of all significant judgments and assumptions made in determining the nature of the interest (subsidiary, joint arrangement, or associate) and the type of joint arrangement when structured through a separate vehicle.

In many cases, particularly concerning subsidiaries, no disclosure of judgments or assumptions may be necessary. Disclosure is only needed when significant judgments and assumptions are required in determining the relationship with the other entity. For many subsidiaries, for example, the assessment will be straightforward with little judgment needed, because it may be clear that control is exercised directly and solely using equity instruments (e.g., ordinary shares) that give the holder proportionate voting rights.

When facts and circumstances change during the reporting period and this affects the reporting entity’s determination as to whether it has control or joint control of, or significant influence over, another entity, disclosure is required of the significant judgments and assumptions made as a result of those changes in facts and circumstances.

Investment entity status

When a parent determines that it is an investment entity by IFRS 10, the investment entity is required to disclose information about significant judgments 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, it is required to disclose its reasons for concluding that it is nevertheless an investment entity.

When an entity becomes or ceases to be an investment entity, it is required to disclose the change of investment entity status and the reasons for the change.

In addition, an entity that becomes an investment entity is required to disclose the effect of the change of status on the financial statements for the period presented, including:

• the total fair value, as of the date of change of status, of the subsidiaries that cease to be consolidated;
• the total gain or loss, if any, calculated under IFRS 10; and
• the line item(s) in profit or loss in which the gain or loss is recognized (if not presented separately).