investment entity. [IFRS 12.9A]. The definition of an investment entity is discussed in
Chapter 6 at 10.1. The following extract from 3i Group plc’s financial statements
illustrates disclosure of these significant judgements and assumptions.
Extract 13.2: 3i Group plc (2018)
Significant accounting policies [extract]
C
Critical accounting judgements and estimates [extract]
(a)
Critical judgements
I.
Assessment as an investment entity [extract]
The Board has concluded that the Company continues to meet the definition of an investment entity as its strategic
objective of investing in portfolio investments and providing investment management services to investors for the
purpose of generating returns in the form of investment income and capital appreciation remains unchanged.
IAS 1 requires an entity to disclose the judgements that management has made in the process
of applying the entity’s accounting policies and that have the most significant effect on the
amounts recognised in the financial statements. [IAS 1.122]. IFRS 12 adds to those general
requirements by specifically requiring an entity to disclose all significant judgements and
estimates made in determining the nature of its interest in another entity or arrangement,
and in determining the type of joint arrangement in which it has an interest. The IASB’s
intention is that disclosure should be required for all situations in which an entity exercises
significant judgement in assessing the nature of its interest in another entity. [IFRS 12.BC16].
There is no requirement for a reporting entity to disclose significant judgements and
assumptions made in determining whether an entity in which it has an interest is a
structured entity. Such a judgement or assumption affects disclosure only and not the
determination of control, joint control or significant influence. However, where such
judgements or assumptions have a significant impact on the volume of disclosures in the
financial statements we believe that it would be useful for a reader of the financial
statements for such judgements or assumptions to be disclosed.
There is no requirement to disclose quantitative information to help assess the
accounting consequences of an entity’s decision to consolidate (or not consolidate)
another entity. IFRS 3 – Business Combinations – already requires disclosures about
the nature and effect of a business combination when an entity obtains control of
another entity. Where an entity requires significant judgement to conclude that it does
not control another entity, that other entity is usually accounted for as a joint venture
or as an associate, and IFRS 12 already requires disclosures of quantitative information
about an entity’s interests in joint ventures and associates and information about risk
exposures to unconsolidated structured entities. Therefore, based on this, the IASB
concluded that there was no need for a separate disclosure requirement. [IFRS 12.BC19].
892 Chapter
13
4
DISCLOSURE OF INTERESTS IN SUBSIDIARIES
An entity must disclose information that enables users of its consolidated financial statements
(a) to
understand:
(i) the composition of the group; and
(ii) the interest that non-controlling interests have in the group’s activities and
cash flows; and
(b) to
evaluate:
(i) the nature and extent of significant restrictions on its ability to access or use
assets, and settle liabilities, of the group;
(ii) the nature of, and changes in, the risks associated with its interests in
consolidated structured entities;
(iii) the consequences of changes in its ownership interest in a subsidiary that do
not result in loss of control; and
(iv) the consequences of losing control of a subsidiary during the reporting period.
[IFRS 12.10].
4.1
Disclosure about the composition of the group
IFRS 12 does not elaborate on what is meant by information that enables users ‘to
understand’ the composition of the group. Judgement will therefore be required as to
the extent of the disclosures made.
It may be helpful to users of the financial statements to illustrate the composition of the
group via a diagram or group organisation chart.
The Basis for Conclusions implies that the IASB does not intend that entities should be
required to disclose financial information about subsidiaries with immaterial non-
controlling interests. Separate financial and non-financial disclosures are required for
subsidiaries with material non-controlling interests (see 4.2 below). [IFRS 12.BC28].
In interpreting the requirement to disclose information that enables users to understand
the composition of the group for subsidiaries with immaterial or no non-controlling
interests, preparers might wish to refer to the non-financial disclosures required for
subsidiaries with non-controlling interests that are material to the entity (see 4.2 below).
Applying these disclosures to other material subsidiaries would mean disclosing:
• the names of those entities;
• the principal place of business (and country of incorporation, if different) of those
entities; and
• the proportion of ownership interest (and the proportion of the voting rights, if
different) held in those entities.
Users of the financial statements are also likely to benefit from a description of the
nature of the operations and principal activities of each material subsidiary and an
indication of the operating segment(s) to which each material subsidiary has been
allocated. A description of the nature of the group’s operations and its principal
activities is required by IAS 1. [IAS 1.138(b)].
Disclosure of interests in other entities 893
Where the financial statements of a subsidiary used in the preparation of the
consolidated financial statements are as of a date or for a period that is different from
that of the consolidated financial statements, an entity must disclose:
• the date of the reporting period of the financial statements of that subsidiary; and
• the reason for using a different date or period. [IFRS 12.11].
The following extract shows UBS AG’s disclosure of individually significant subsidiaries.
Extract 13.3: UBS Group AG (2017)
Notes to the UBS Group AG consolidated financial statements [extract]
Note 28
Interests in subsidiaries and other entities [extract]
a) Interests
in
subsidiaries [extract]
UBS defines its significant subsidiaries as those entities that, either individually or in aggregate, contribute significantly to the Group’s financial position or results of operations, based on a number of criteria, including the subsidiaries’ equity and their contribution to the Group’s total assets and profit or loss before tax, in accordance with the requirements set by IFRS 12, Swiss regulations and the rules of the US Securities and Exchange Commission (SEC).
Individually significant subsidiaries
The two tables below list the Group’s individually significant subsidiaries as of 31 December 2017. Unless otherwise
stated, the subsidiaries listed below have share capital consisting solely of
ordinary shares, which are held fully by
the Group, and the proportion of ownership interest held is equal to the voting rights held by the Group.
The country where the respective registered office is located is also the principal place of business.
[...]
Individually significant subsidiaries of UBS AG as of 31 December 2017
Primary
Registered
business
Share capital in
Equity interest
Company
office
division
million accumulated in %
Wilmington,
Corporate
UBS Americas Holding LLC
Delaware, USA
Center USD
2,250.0
1
100.0
Zurich,
Asset
UBS Asset Management AG
Switzerland
Management CHF
43.2
100.0
Wealth
Salt Lake City,
Management
UBS Bank USA
Utah, USA
Americas USD
0.0
100.0
Frankfurt,
Wealth
UBS Europe SE
Germany
Management EUR
446.0
100.0
Wealth
Wilmington,
Management
UBS Financial Services Inc.
Delaware, USA
Americas USD
0.0
100.0
London, United
Investment
UBS Limited
Kingdom
Bank GBP
226.6
100.0
Wilmington,
Investment
UBS Securities LLC
Delaware, USA
Bank USD
1,283.1
2
100.0
Personal &
Zurich,
Corporate
UBS Switzerland AG
Switzerland
Banking CHF
10.0
100.0
1 Comprised of common share capital of USD 1,000 and non-voting preferred share capital of USD 2,250,000,000.
2 Comprised of common share capital of USD 100,000 and non-voting preferred share capital of USD 1,283,000,000.
894 Chapter
13
4.2 Disclosure
of
interests
of non-controlling interests
A reporting entity must disclose, for each of its subsidiaries that have non-controlling
interests that are material:
(a) the name of the subsidiary;
(b) the principal place of business (and country of incorporation if different from the
principal place of business) of the subsidiary;
(c) the proportion of ownership interests held by non-controlling interests;
(d) the proportion of voting rights held by non-controlling interests, if different to the
proportion of ownership interests held;
(e) the profit or loss allocated to the non-controlling interests of the subsidiary during
the reporting period;
(f) accumulated non-controlling interests of the subsidiary at the end of the reporting
period; and
(g) summarised financial information about the subsidiary (see below). [IFRS 12.12].
The summarised financial information required to be disclosed is as follows:
(a) dividends paid to non-controlling interests; and
(b) summarised financial information about the assets, liabilities, profit or loss and cash
flows of the subsidiary that enables users to understand the interest that non-
controlling interests have in the group’s activities and cash flows. The information
might include but is not limited to, for example, current assets, non-current assets,
current liabilities, non-current liabilities, revenue, profit or loss and total
comprehensive income. [IFRS 12.B10]. The summarised financial information must
be presented before inter-company eliminations. [IFRS 12.B11].
The IASB believes that these disclosures will help users when estimating future profit
or loss and cash flows by identifying, for example, the assets and liabilities that are held
by subsidiaries, the risk exposures of particular group entities (e.g. by identifying which
subsidiaries hold debt) and those subsidiaries that generate significant cash flows.
[IFRS 12.BC27]. From this, one could infer that the summarised financial information
should disclose significant amounts of bank loans separately from other liabilities.
The IASB does not believe this requirement is particularly onerous on the grounds that
an entity should have the information available in preparing its consolidated financial
statements. [IFRS 12.BC29].
Non-controlling interest is equity in a subsidiary not attributable, directly or indirectly,
to a parent. [IFRS 10 Appendix A]. This means that these disclosures do not apply to
instruments that might have the legal characteristics of equity but which are classified
as financial liabilities under IFRS. This would also apply to instruments that are
classified as equity in the separate financial statements of a subsidiary but classified as
financial liabilities in the consolidated financial statements. Similarly, when a parent has
concluded that it already has a present ownership interest in shares held by a non-
controlling interest by virtue of call or put options in respect of those shares (see
Chapter 7 at 6), then IFRS 12 disclosures in respect of those shares are not required by
the parent because there is no non-controlling interest in the financial statements.
Disclosure of interests in other entities 895
The standard is clear that this information is required only in respect of non-controlling
interests that are material to the reporting entity (i.e. the group). A subsidiary may have
a significant non-controlling interest per se but disclosure is not required if that interest
is not material at group level. Similarly, these disclosures do not apply to non-controlling
interests that are material in aggregate but not individually.
In January 2015, the Interpretations Committee discussed a request to clarify the level
at which the financial information required by (e) to (g) above should be provided where
a subsidiary has non-controlling interests that are material to the group. The issue was
whether the information provided should be either:
• at the subsidiary (i.e. entity) level based on the separate financial statements of the
subsidiary; or
• at a subgroup level for the subgroup of the subsidiary and based on either (i) the
amounts of the subgroup included in the consolidated financial statements of the
parent or, (ii) the amounts included in the consolidated financial statements of the
subgroup. In both (i) and (ii), transactions and balances between the subgroup and
other subsidiaries of the reporting entity outside the subgroup would not be
eliminated.
The Interpretations Committee noted that the decision on which approach is used to
present the disclosures required by (e) to (g) above should reflect the one that best meets
the disclosure objective (see (a) at 4 above) in the circumstances.
In respect of (e) and (f), the Interpretations Committee observed that a reporting entity
should apply judgement in determining the level of disaggregation of information about
subsidiaries that have material non-controlling interest. That is, whether:
• the entity presents this information about the subgroup of the subsidiary; or
• whether it is necessary in achieving the disclosure objective to disaggregate the
information further to present information about the individual subsidiaries that
have material non-controlling interest within that subgroup.
In respect of (g) above, the Interpretations Committee observed that, in order to meet
the overall disclosure requirement, information would need to be prepared on a basis
that was consistent with the information included in the consolidated financial
statements from the perspective of the reporting entity. This would mean, for example,
that if the subsidiary was acquired in a business combination, the amounts disclosed
should reflect the effects of the acquisition accounting (e.g. goodwill and fair value
adjustments). The Interpretations Committee further observed that in providing the
information, an entity would apply judgement in determining whether this information
was presented at a subgroup level or whether further disaggregation was necessary
about individual subsidiaries that have material non-controlling interest within that
subgroup. However, the Interpretations Committee noted that the information supplied
would include transactions between the subgroup/subsidiary and other members of the
reporting entity’s group without elimination, but that transactions within the subgroup
would be eliminated.
On the basis of the above analysis, the Interpretations Committee concluded that
neither an Interpretation nor an amendment to IFRS 12 was necessary and decided not
to add the issue to its agenda.3
896 Chapter
13
Glencore plc’s financial statements illustrate disclosure of summarised financial
information in respect of subsidiaries that have material non-controlling interests.
Extract 13.4: Glencore plc (2017)
Notes to the financial statements [extract]
32. Principal subsidiaries with material non-controlling interests [extract]
Summarised financial information in respect of Glencore’s subsidiaries that have material non-controlling interest
as at 31 December 2017, reflecting 100% of the underlying subsidiary’s relevant figures, is set out below.
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 176