Composition of the group

An entity must provide details in its consolidated financial statements to help users understand the group’s structure

Disclosure of information to enable users to understand the composition of the group Unlike the other requirements in IFRS 12, no additional guidance is given regarding the information to be disclosed under IFRS 12. It is uncertain if adhering to the guidelines of IFRS 12 will be enough to fulfill its requirements, or if more information will be necessary. For instance, the Standard does not explicitly state if IFRS 12 mandates a reporting entity to present a complete list of its subsidiaries. The section about IFRS 12 titled ‘Composition of the group and non-controlling interests’ primarily delves into the impact of non-controlling interests and significant restrictions (such as those stemming from legal boundaries) on the cash flows available for distribution to the parent company’s shareholders. Non-controlling interests and significant restrictions have more detailed disclosure requirements in paragraphs 12 and 13. Basis for Conclusions clarifies the Board’s thinking to some extent, as follows. The Board agreed to provide financial information for subsidiaries with significant non-controlling interests, as requested by users. Revealing details about subsidiaries with insignificant or absent non-controlling interests could be burdensome to compile without offering substantial advantages to users, who are anticipated to gain the most from having financial data about subsidiaries with significant non-controlling interests. This statement highlights that IFRS 12 does not mandate an entity to present a comprehensive list of all subsidiaries, including individually significant ones. It is recommended that an entity uses its judgment to determine if the information provided will be enough for users to understand the group’s composition, in the absence of additional guidance or explanation. If this is not the situation, it is important to include more details

Non-controlling interests

An entity must provide details in its consolidated financial statements to help users understand the involvement of non-controlling interests in the group’s activities and cash flows.

This additional requirement complements the guidelines of IAS 1 concerning the proper presentation and disclosure of non-controlling interests. It includes
(1) a detailed breakdown of profit or loss and other comprehensive income, distinguishing between what belongs to non-controlling interests and what belongs to the parent company’s owners,
(2) a separate presentation of non-controlling interests within equity on the balance sheet, and
(3) a reconciliation of non-controlling interests from the start to the end of the reporting period on the statement of changes in equity.

Disclosure of the following is required for each subsidiary that has non-controlling interests that are material to the reporting entity:

(a) the subsidiary’s name;

(b) the subsidiary’s principal place of business and, if different, country of incorporation;

(c) the proportion of the subsidiary’s ownership interests held by non-controlling interests and, if different, the proportion of the subsidiary’s voting rights held by non-controlling interests;

(d)the profit or loss allocated to non-controlling interests of that subsidiary during the reporting period;

(e) dividends paid to the non-controlling interests of that subsidiary;

(f) the accumulated non-controlling interests of that subsidiary at the end of the reporting period; and

(g) summarized financial information stated before any inter-company eliminations about the subsidiary’s assets, liabilities, profit or loss, and cash flows. That information should enable users to understand the interest that non-controlling interests have in the group’s activities and cash flows. For example, it might include, but is not limited to:

• current assets;
• non-current assets;
• current liabilities;
• non-current liabilities;
• revenue;
• profit or loss; and
• total comprehensive income.

In the list provided, option (d) specifies the need to disclose the amount of the subsidiary’s profit or loss shown in the consolidated financial statements as attributable to the non-controlling interests. This amount may vary from the one stated in the summarized financial information about the subsidiary in item (g) above. This is because the amount in item (d) will account for the removal of intragroup transactions.

Summarized financial information is not required for subsidiaries classified as held for sale under IFRS 5

Significant restrictions

An entity must provide information in its consolidated financial statements that allows users to assess the nature and scope of substantial limitations on the entity’s access to or use of the group’s assets or the settlement of the group’s liabilities.

This criterion aims to disclose limits due to legal borders within a group, such as limitations on transferring funds between group organizations.

An entity must disclose the following to achieve this requirement:

• .Description of important limitations (such as legal, regulatory, and contractual limits) that affect the entity’s capacity to utilize the group’s assets or resolve the group’s debts. Examples of restrictions include limitations on transferring cash or assets between entities in the group, as well as guarantees or requirements that limit dividend payments, capital distributions, or the ability to make or repay inter-company loans.
• Additionally, consider how protective rights of non-controlling interests may significantly restrict the entity’s access to group assets or settlement of group liabilities. Examples include a parent company having to pay off a subsidiary’s debts before its own, needing approval from non-controlling interests to use a subsidiary’s assets or pay its debts,
• and the values of assets and debts in the consolidated financial statements being affected by these restrictions.

This requirement adds to the disclosure mandated by IAS 7 regarding the substantial cash and cash equivalent balances kept by the company that are not accessible to the group.

Interests in consolidated structured entities

An entity must provide information in its consolidated financial statements that allows users to assess the type of risk it has and how it has changed with relation to its holdings in consolidated structured entities.

To meet the requirements of IFRS 12, the following information is required to be disclosed.

• Whenever there are contractual agreements that may involve a group member providing financial assistance to a consolidated structured entity, it is important to disclose the terms of the agreement. It is important to include details of any events or circumstances that could potentially lead to a loss, such as liquidity arrangements or credit rating triggers related to obligations to purchase assets of the structured entity or provide financial support.
• If, during the reporting period, a group member has offered financial or other support to a consolidated structured entity (e.g., by acquiring assets of the structured entity or by purchasing instruments issued by the structured entity), without any contractual obligation, disclosure is necessary of:
  • the type and amount of support given (including instances where the parent or its subsidiaries helped the structured entity in obtaining financial support);
  • and the explanations for providing the assistance.
• While the reporting period continued on, if a group member gave money or other help to a structured entity that wasn’t consolidated before, without being required to, and the group then took control of the structured entity because of the help, the reporting entity needs to explain what factors were considered in making that decision.
• It is necessary to disclose any current plans to offer financial or other assistance to a consolidated structured entity, as well as any plans to help a structured entity secure financial support.

Changes in ownership of subsidiaries

An organization must provide details in its consolidated financial statements that allow users to assess the impact of alterations in the entity’s ownership stake in a subsidiary that do not lead to a loss of control over the subsidiary.
It is important for a reporting entity to provide a schedule illustrating the impact on the equity attributed to the owners of the parent due to changes in its ownership interest in a subsidiary without losing control.

An example where ownership interest in a subsidiary changes without losing control is when the subsidiary issues rights that non-controlling interests do not exercise. This change would lead to an increase in the parent’s interest.

Losing control of a subsidiary

An entity must provide details in its consolidated financial statements that allow users to assess the impact of relinquishing control of a subsidiary in the current reporting period. An organization must disclose any gain or loss calculated by IFRS 10, as well as:

• the part of the profit or loss related to valuing any investment held in the previous subsidiary at its fair value when control is relinquished; and
• The specific item(s) in the profit or loss statement where the gain or loss is acknowledged if it is not shown separately.

Subsidiary with different reporting date or length of reporting period

Sometimes, it may not be feasible for a subsidiary’s financial statements, used in preparing the consolidated financial statements, to be prepared on the same date or for the same period as the consolidated financial statements. Under these conditions, disclosure is necessary in the consolidated financial statements of:

• the date of the end of the reporting period of the subsidiary’s financial statements; and
• the reasons for using a different date or period.

Interests in unconsolidated subsidiaries (investment entities)

An investment entity that must follow IFRS 10 and account for its investment in a subsidiary at fair value through profit or loss needs to disclose this information.

For each unconsolidated subsidiary, an investment entity is required to disclose:

(a) the subsidiary’s name;

(b) the subsidiary’s principal place of business and, if different, country of incorporation; and

(c) the proportion of the subsidiary’s ownership interest held by the investment entity and, if different, the proportion of voting rights held.

When one investment entity is the parent of another investment entity, the parent must also provide the necessary disclosures for investments controlled by its subsidiary, as outlined in IFRS 12. One way to provide the disclosure is by including the financial statements of the subsidiary (or subsidiaries) in the parent company’s financial statements.

An investment entity is required to disclose:

• the scope and impact of any major limitations (such as those arising from borrowing agreements, regulations, or contracts) on an unconsolidated subsidiary’s ability to transfer money to the investment entity through cash dividends or to repay loans or advances from the investment entity;
• The company’s current plans or promises to help an unconsolidated business get financial support or help it get financial support in any other way.

In the reporting period, if an investment entity or any of its subsidiaries gave financial or other support to an unconsolidated subsidiary without being required to by contract, such as by buying assets or securities issued by the subsidiary or helping the subsidiary get financial support, the entity must say the following:

• the type and amount of support provided to each unconsolidated subsidiary; and
• the reasons for providing the support.

The Board chose not to define financial support, but the Basis for Conclusions on IFRS 12 says that the Board thinks it is generally understood to mean giving money or other resources to another company, either directly or indirectly.

It is required for an investment entity to report any contracts that could require it or its unconsolidated subsidiaries to provide financial support to a controlled, unconsolidated entity. This includes events or situations that could put the reporting entity at risk of losing money, such as credit rating triggers or liquidity arrangements that require obligations to buy assets of the structured entity or to provide financial support.

It is required that during the reporting period, an investment entity or any of its unconsolidated subsidiaries gave financial or other support to a structured entity that it did not control, even though they were not required to by contract to do so. If this support led to the investment entity controlling the structured entity, the investment entity must explain what made them decide to give that support.