Disclosure requirements for interests in joint arrangements and associates – general

The disclosure requirements outlined typically pertain to interests in joint ventures and associates as reported in consolidated financial statements prepared in accordance with IFRS 10. These rules will also be relevant if the investor does not produce consolidated financial statements due to the absence of subsidiaries, but holds a joint venturer’s interest in a joint venture, a joint operator’s interest in a joint operation, or significant influence over an associate.

All entities, including venture capital organizations, mutual funds, unit trusts, or similar entities, must adhere to the disclosure requirements for interests in joint ventures and associates. Some disclosures are only relevant when the equity method is utilized. If a venture capital organization, mutual fund, unit trust, or similar entity opts to account for an interest at fair value through profit or loss rather than using the equity method, those disclosures do not apply.

Scope – entity accounts for investments in its separate financial statements using the equity method When an entity chooses to use the equity method of accounting for its investments in associates and joint ventures in its individual financial statements, it does not have to follow the disclosure requirements mentioned. Typically, IFRS 12 does not extend to separate financial statements, regardless of whether the entity chooses to apply the equity method in those separate financial statements. Nevertheless, if a company holds investments in unconsolidated structured entities and issues standalone financial statements as its primary financial statements, it must include the necessary disclosures as per IFRS 12. Investment entities are not subject to specific disclosure requirements under this heading; otherwise, the disclosure requirements listed below apply equally to investment entities.

Nature, extent and financial effects of interests in joint arrangements and associates

Nature of interests in joint arrangements and associates – general

An entity must provide details in its financial statements that allow users to assess the characteristics, scope, and financial impact of its involvement in joint ventures and affiliated companies. This includes information about the nature and consequences of the entity’s contractual agreements with other investors who share control or have significant influence over joint ventures and affiliated companies.

Investment entities need not present the disclosures required by IFRS 12

Joint arrangements and associates that are material to the reporting entity

The reporting entity must submit information for each significant joint arrangement and affiliate.

• its name;
• the nature of the reporting entity’s relationship with it (e.g., by describing the nature of the activities undertaken and whether they are strategic to the reporting entity’s activities);
• its principal place of business and, if applicable and different, the country of incorporation; and
• the proportion of ownership interest or participating share held by the reporting entity and, if applicable and different, the proportion of voting rights held.

The reference to joint arrangements includes disclosure requirements for both joint ventures and joint operations, but the requirements mentioned do not apply to joint operations

Additional disclosures for joint ventures and associates that are material to the reporting entity

The reporting entity is required to disclose the following information in addition to that required by IFRS 12 for each material associate and joint venture:

• whether the investment in the joint venture or associate is measured using the equity method or at fair value;
• if the investment is measured using the equity method, and there is a quoted market price for the investment, the investment’s fair value;
• dividends received by the reporting entity from the joint venture or associate;
• summarized financial information (unless the joint venture or associate, or a portion thereof, is classified as held for sale in accordance with IFRS 5), including, but not necessarily limited to:
  • current assets;
  • non-current assets;
  • current liabilities;
  • non-current liabilities;
  • revenue;
  • profit or loss from continuing operations;
  • post-tax profit or loss from discontinued operations;
  • other comprehensive income; and
  • total comprehensive income;
• for every significant joint venture related to the reporting entity (unless classified as held for sale in accordance with IFRS 5), the following information should be disclosed:
  • cash and cash equivalents included in current assets;
  • current financial liabilities (excluding trade and other payables and provisions) included in current liabilities;
  • non-current financial liabilities (excluding trade and other payables and provisions) included in non-current liabilities;
  • depreciation and amortization;
  • interest income;
  • interest expense; and
  • income tax expense or income; and
• if the reporting entity uses the equity method to account for its interest in the joint venture or associate, a reconciliation of the summarized financial information to the carrying amount of its interest in the joint venture or associate

The summarized financial details needed for disclosure under IFRS 12 should mirror the figures disclosed in the IFRS financial statements of the joint venture or associate, rather than the reporting entity’s portion of those figures. When the interest in the joint venture or associate is accounted for by the reporting entity using the equity method, the amounts included in the financial statements of the joint venture or associate should be adjusted to reflect changes made in applying the equity method

When the reporting entity’s interest in the joint venture or associate is measured at fair value, the summarized information can be disclosed based on the joint venture’s or associate’s financial statements if they do not produce IFRS financial statements and preparing them would be impractical or costly. When faced with such situations, it is important to disclose the basis of preparation of the summarized financial information

Joint ventures and associates that are not individually material to the reporting entity

The reporting entity needs to disclose the following information, combined for all joint ventures that are not significant individually to the reporting entity and, separately, combined for all associates that are not significant individually to the reporting entity:

• the carrying amount of the interests accounted for using the equity method; and
• the reporting entity’s share of those joint ventures’ or associates’:
  • profit or loss from continuing operations;
  • post-tax profit or loss from discontinued operations;
  • other comprehensive income; and
  • total comprehensive income.

Summarized financial information is not required under IFRS 12 for subsidiaries classified as held for sale in accordance with IFRS 5

Significant restrictions

The reporting entity needs to disclose the nature and extent of any significant restrictions on the ability of joint ventures or associates to transfer funds to the reporting entity in the form of cash dividends or repay loans or advances from the reporting entity. These restrictions could result from borrowing arrangements, regulatory requirements, or contractual arrangements between investors with joint control of or significant influence over a joint venture or an associate.

Financial statements to a different date or for a different period

When the financial statements of a joint venture or associate used in applying the equity method have a different date or period than the reporting entity, the reporting entity should disclose:

• the date of the end of the reporting period of the joint venture’s or associate’s financial statements; and
• the reason for using a different date or different period.

Unrecognized share of losses

If the reporting business uses the equity method and stops recognizing its part of losses from a joint venture or associate, it must declare the unrecognized share of losses, both for the period and cumulatively.

Risks associated with interests in joint ventures and associates

Risks associated with interests in joint ventures and associates – general

An entity must provide details that allow readers of its financial statements to assess the type of, and modifications in, the risks linked to its investments in joint ventures and associates.

Contingent liabilities relating to interests in joint ventures or associates

When a reporting entity has contingent liabilities from joint ventures or associates, these should be disclosed separately if there is a possibility of loss. The reported amounts should encompass the reporting entity’s portion of contingent liabilities that were incurred jointly with other investors who have joint control of, or significant influence over, joint ventures and associates.

Commitments for joint ventures

It is important for the reporting entity to disclose commitments made in relation to its joint ventures separately from other commitments.

The disclosed amount for commitments related to joint ventures should represent the total commitments made by the reporting entity that have not been recognized as of the reporting date. Commitments that could lead to future cash outflows or resource usage must be disclosed. This disclosure should encompass the reporting entity’s portion of commitments made in collaboration with other joint venturers.

Unidentified obligations that could result in a future withdrawal of funds or other resources consist of:

• Unrecognized commitments to provide funding or resources to the joint venture itself resulting from, for instance:
  • the joint venture’s constitution or acquisition agreements (which, for example, require contribution of funds over a specific period);
  • capital-intensive projects undertaken by the joint venture;
  • unconditional purchase obligations, which include the procurement of equipment, inventory, or services that an entity is committed to purchasing from, or on behalf of, a joint venture;
  • unrecognized commitments to lend money or provide other forms of financial support to a joint venture;
  • unrecognized commitments to contribute resources to a joint venture, like assets or services; and other non-cancellable unrecognized commitments pertaining to a joint venture
• Unspecified obligations to acquire someone else’s stake in a partnership based on future events

Some of these disclosures are likely to be required by IAS 24 as well as by IFRS 12.