Composition of the group

An entity is required to disclose information that enables users of its consolidated financial statements to understand the composition of the group.

Disclosure of information to enable users to understand the composition of the group Unlike the other requirements in IFRS 12, no further guidance is provided in respect of the information to be disclosed under IFRS 12. Therefore, it is not clear whether compliance with the requirements of IFRS 12 (see below) will be sufficient to meet the requirements of IFRS 12, or whether additional information may be required. For example, the Standard does not specifically address whether IFRS 12 requires a reporting entity to provide a full list of its subsidiaries. The discussion on IFRS 12 under the heading ‘Composition of the group and non-controlling interests’ focuses largely on the effects that non-controlling interests and significant restrictions (e.g., arising from legal boundaries) may have on cash flows that can be distributed to the shareholders of the parent. Non-controlling interests and significant restrictions are the subject of more specific disclosure requirements in paragraphs 12 and 13, respectively. Basis for Conclusions clarifies the Board’s thinking to some extent, as follows. “Although users have requested financial information about all subsidiaries that are material to the group, the Board decided to require financial information only for those subsidiaries with material non-controlling interests. A requirement to disclose information about subsidiaries with immaterial or no non-controlling interests might prove to be onerous to prepare without any significant benefit for users, who are expected to benefit most from having financial information about subsidiaries with material non-controlling interests.” This clarifies that IFRS 12 is not intended to require an entity to provide a list of all subsidiaries, or even of all individually material subsidiaries. Accordingly, in the absence of further guidance or explanation, it is suggested that an entity should use its judgement to consider whether the information provided in accordance with subsequent paragraphs will, in itself, be sufficient to enable users to understand the composition of the group. When this is not the case, additional information should be provided.

Non-controlling interests

An entity is required to disclose information that enables users of its consolidated financial statements to understand the interest that any non-controlling interests have in the activities and cash flows of the group.

This requirement supplements the requirements of IAS 1 regarding the presentation and disclosure of non-controlling interests, namely (1) an analysis of profit or loss and of other comprehensive income between that attributable to non-controlling interests and that attributable to owners of the parent, (2) presentation of non-controlling interests separately, within equity, in the statement of financial position, and (3) in the statement of changes in equity, a reconciliation of the non-controlling interests at the beginning and end of the period.

For each subsidiary that has non-controlling interests that are material to the reporting entity, disclosure is required of the following:

(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 above, (d) requires disclosure of the amount of the subsidiary’s profit or loss presented in the consolidated financial statements as attributable to the non-controlling interests. This may differ from the amount reported in the summarized financial information concerning the subsidiary under item (g) above, for example, because the amount reported under item (d) will reflect the elimination of intragroup transactions.

The summarized financial information required under IFRS 12 need not be provided for any subsidiaries classified as held for sale by IFRS 5.

Significant restrictions

An entity is required to disclose information that enables users of its consolidated financial statements to evaluate the nature and extent of significant restrictions on the entity’s ability to access or use the group’s assets or settle the group’s liabilities.

This requirement is intended to result in disclosure about restrictions existing because of legal boundaries within a group, such as restrictions on transferring cash between group entities.

In meeting this disclosure requirement, an entity is required to disclose the following:

• details of significant restrictions (e.g., statutory, regulatory, and contractual restrictions) on the entity’s ability to access or use the group’s assets or settle the group’s liabilities. Examples include restrictions affecting the ability to transfer cash or other assets between entities within the group, and guarantees or other requirements that may restrict the payment of dividends and other capital distributions within the group or restrict the ability to make or repay an inter-company loan or advance;
• the nature and extent to which any non-controlling interests’ protective rights can result in a significant restriction of the entity’s ability to access or use the group’s assets or settle the group’s liabilities. Examples include a parent being obliged to settle a subsidiary’s liabilities before its own, the non-controlling interests’ approval being required to access a subsidiary’s assets or settle its liabilities; and
• the carrying amounts in the consolidated financial statements of the assets and liabilities to which the restrictions identified above apply.

This requirement supplements the disclosure already required under IAS 7 of the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the group.

Interests in consolidated structured entities

An entity is required to disclose information that enables users of its consolidated financial statements to evaluate the nature of, and changes in, the risks associated with the entity’s interests in consolidated structured entities.

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

• When contractual arrangements could require a member of the group to provide financial support to a structured entity that has been consolidated, the terms of the contractual arrangement should be disclosed. These disclosures should include details of any events or circumstances that might expose the reporting entity to a loss (e.g., liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or provide financial support).
• If, during the reporting period, a member of the group has provided financial or other support to a consolidated structured entity (e.g., by purchasing assets of the structured entity or by purchasing instruments issued by the structured entity), without having any contractual obligation to do so, disclosure is required of:
  • the type and amount of support provided (including situations in which the parent or its subsidiaries assisted the structured entity in obtaining financial support); and
  • the reasons for providing the support.
• If, during the reporting period, a member of the group has given financial or other support to a previously unconsolidated structured entity, without having a contractual obligation to do so, and as a result of the support the group obtained control of the structured entity, the reporting entity is required to explain the relevant factors in reaching that decision.
• Disclosure is required of any current intentions to provide financial or other support to a consolidated structured entity, including any intentions to assist a structured entity in obtaining financial support.

Changes in ownership of subsidiaries

An entity is required to disclose information that enables users of its consolidated financial statements to evaluate the consequences of changes in the entity’s ownership interest in a subsidiary that do not result in a loss of control of that subsidiary. A reporting entity should present a schedule showing the effects on the equity attributable to the owners of the parent of changes in its ownership interest in a subsidiary that do not result in a loss of control.

An example of a change in the ownership interest of a subsidiary that does not result in a loss of control would be a rights issue made by the subsidiary for which the non-controlling interests do not take up their rights. This would result in the parent’s interest being increased.

Losing control of a subsidiary

An entity is required to disclose information that enables users of its consolidated financial statements to evaluate the consequences of losing control of a subsidiary during the reporting period. An entity is required to disclose the gain or loss, if any, calculated by IFRS 10, and also:

• the portion of that gain or loss attributable to measuring any investment retained in the former subsidiary at its fair value at the date when control is lost; and
• the line item(s) in profit or loss in which the gain or loss is recognized if it is not presented separately.

Subsidiary with different reporting date or length of reporting period

Occasionally it is impracticable 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. In such circumstances, disclosure is required 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, by IFRS 10, is required to apply the exception to consolidation and instead account for its investment in a subsidiary at fair value through profit or loss is required to disclose that fact.

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.

If an investment entity is the parent of another investment entity, the parent is also required to provide the disclosures required under IFRS 12 (listed above) for investments that are controlled by its investment entity subsidiary. The disclosure may be provided by including, in the financial statements of the parent, the financial statements of the subsidiary (or subsidiaries) that contain the above information.

An investment entity is required to disclose:

• the nature and extent of any significant restrictions (e.g., resulting from borrowing arrangements, regulatory requirements, or contractual arrangements) on the ability of an unconsolidated subsidiary to transfer funds to the investment entity in the form of cash dividends or to repay loans or advances made to the unconsolidated subsidiary by the investment entity; and
• any current commitments or intentions to provide financial or other support to an unconsolidated subsidiary, including commitments or intentions to assist the subsidiary in obtaining financial support.

If, during the reporting period, an investment entity or any of its subsidiaries has, without having a contractual obligation to do so, provided financial or other support to an unconsolidated subsidiary (e.g., purchasing assets of, or instruments issued by, the subsidiary or assisting the subsidiary in obtaining financial support), the entity is required to disclose:

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

The Board decided not to define financial support, but the Basis for Conclusions on IFRS 12 notes that the Board believes it is widely understood as the provision of resources to another entity, directly or indirectly.

An investment entity is required to disclose the terms of any contractual arrangements that could require the entity or its unconsolidated subsidiaries to provide financial support to an unconsolidated, controlled, structured entity, including events or circumstances that could expose the reporting entity to a loss (e.g., liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or to provide financial support).

If during the reporting period, an investment entity or any of its unconsolidated subsidiaries has, without having a contractual obligation to do so, provided financial or other support to an unconsolidated, structured entity that the investment entity did not control, and if that provision of support resulted in the investment entity controlling the structured entity, the investment entity is required to explain the relevant factors in deciding to provide that support.