Commission Regulation (EU) No 1254/2012 of 11 December 2012 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standard 10, International Financial Reporting Standard 11, International Financial Reporting Standard 12, International Accounting Standard 27 (2011), and International Accounting Standard 28 (2011)  Text with EEA relevance
Date: 2012-12-11
Institutions: European Commission
Subjects: disclosure of information, financial accounting, financial analysis, financial legislation, international standard, standardised accounting system




L_2012360EN.01000101.xml










29.12.2012   


EN


Official Journal of the European Union


L 360/1








            COMMISSION REGULATION (EU) No 1254/2012
of 11 December 2012
         
amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standard 10, International Financial Reporting Standard 11, International Financial Reporting Standard 12, International Accounting Standard 27 (2011), and International Accounting Standard 28 (2011)
(Text with EEA relevance)


THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,


Having regard to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (1), and in particular Article 3(1) thereof,

Whereas:







(1)


By Commission Regulation (EC) No 1126/2008 (2) certain international standards and interpretations that were in existence at 15 October 2008 were adopted.












(2)


On 12 May 2011, the International Accounting Standards Board (IASB) published International Financial Reporting Standard (IFRS) 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, as well the amended International Accounting Standard (IAS) 27 Separate Financial Statements and IAS 28 Investment in Associates and Joint Ventures. The objective of IFRS 10 is to provide a single consolidation model that identifies control as the basis for consolidation for all types of entities. IFRS 10 replaces IAS 27 Consolidated and Separate Financial Statements and Interpretation 12 of the Standing Interpretations Committee (SIC) Consolidation—Special Purpose Entities (SIC-12). IFRS 11 establishes principles for the financial reporting by parties to a joint arrangement, and replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities–Non-monetary Contributions by Venturers. IFRS 12 combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. As a consequence of these new IFRSs, the IASB also issued the amended IAS 27 and IAS 28.












(3)


This Regulation endorses IFRS 10, IFRS 11, IFRS 12, and the amended IAS 27 and IAS 28, as well as the resulting amendments to other standards and interpretations. Those standards and amendments to existing standards or interpretations contain some references to IFRS 9 that at present cannot be applied as IFRS 9 has not been adopted by the Union yet. Therefore, any reference to IFRS 9 as laid down in the Annex to this Regulation should be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement. Additionally, any consequential amendment to IFRS 9 resulting from the Annex to this Regulation cannot be applied.












(4)


The consultation with the Technical Expert Group (TEG) of the European Financial Reporting Advisory Group (EFRAG) confirms that IFRS 10, IFRS 11, IFRS 12, and the amended IAS 27 and IAS 28 meet the technical criteria for adoption set out in Article 3(2) of Regulation (EC) No 1606/2002.












(5)


Regulation (EC) No 1126/2008 should therefore be amended accordingly.












(6)


The measures provided for in this Regulation are in accordance with the opinion of the Accounting Regulatory Committee,





HAS ADOPTED THIS REGULATION:



Article 1

1.   The Annex to Regulation (EC) No 1126/2008 is amended as follows:






(a)


International Financial Reporting Standard (IFRS) 10 Consolidated Financial Statements is inserted as set out in the Annex to this Regulation;










(b)


IFRS 1, IFRS 2, IFRS 3, IFRS 7, International Accounting Standard (IAS) 1, IAS 7, IAS 21, IAS 24, IAS 27, IAS 32, IAS 33, IAS 36, IAS 38, IAS 39, and Interpretation 5 of the International Financial Reporting Interpretations Committee (IFRIC 5) are amended, and Interpretation 12 of the Standing Interpretations Committee (SIC-12) is replaced in accordance with IFRS 10 as set out in the Annex to this Regulation;










(c)


IFRS 11 Joint Arrangements is inserted as set out in the Annex to this Regulation;










(d)


IFRS 1, IFRS 2, IFRS 5, IFRS 7, IAS 7, IAS 12, IAS 18, IAS 21, IAS 24, IAS 32, IAS 33, IAS 36, IAS 38, IAS 39, IFRIC 5, IFRIC 9, and IFRIC 16 are amended, and IAS 31 and SIC-13 are replaced in accordance with IFRS 11 as set out in the Annex to this Regulation;










(e)


IFRS 12 Disclosure of Interests in Other Entities is inserted as set out in the Annex to this Regulation;










(f)


IAS 1, and IAS 24 are amended in accordance with IFRS 12 as set out in the Annex to this Regulation;










(g)


The amended IAS 27 Separate Financial Statements is inserted as set out in the Annex to this Regulation;










(h)


The amended IAS 28 Investment in Associates and Joint Ventures is inserted as set out in the Annex to this Regulation.






2.   Any reference to IFRS 9 as laid down in the Annex to this Regulation shall be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement.


3.   Any consequential amendment to IFRS 9 resulting from the Annex to this Regulation shall not be applied.



Article 2
Each company shall apply IFRS 10, IFRS 11, IFRS 12, the amended IAS 27, the amended IAS 28, and the consequential amendments referred to in points (b), (d) and (f) of Article 1(1), at the latest, as from the commencement date of its first financial year starting on or after 1 January 2014.


Article 3
This Regulation shall enter into force on the third day following that of its publication in the Official Journal of the European Union.




This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 11 December 2012.


For the Commission


The President

José Manuel BARROSO
            





(1)  
            OJ L 243, 11.9.2002, p. 1.

(2)  
            OJ L 320, 29.11.2008, p. 1.




ANNEX

INTERNATIONAL ACCOUNTING STANDARDS








IFRS 10










IFRS 10



Consolidated Financial Statements









IFRS 11










IFRS 11



Joint Arrangements









IFRS 12










IFRS 12



Disclosure of Interests in Other Entities









IAS 27










IAS 27



Separate Financial Statements









IAS 28










IAS 28



Investment in Associates and Joint Ventures









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INTERNATIONAL FINANCIAL REPORTING STANDARD 10



Consolidated Financial Statements


OBJECTIVE








1


The objective of this IFRS is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.





Meeting the objective









2


To meet the objective in paragraph 1, this IFRS:






(a)


requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements;










(b)


defines the principle of control, and establishes control as the basis for consolidation;










(c)


sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee; and










(d)


sets out the accounting requirements for the preparation of consolidated financial statements.
















3


This IFRS does not deal with the accounting requirements for business combinations and their effect on consolidation, including goodwill arising on a business combination (see IFRS 3 Business Combinations).




SCOPE








4


An entity that is a parent shall present consolidated financial statements. This IFRS applies to all entities, except as follows:






(a)


a parent need not present consolidated financial statements if it meets all the following conditions:






(i)


it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements;










(ii)


its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);










(iii)


it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and










(iv)


its ultimate or any intermediate parent produces consolidated financial statements that are available for public use and comply with IFRSs.














(b)


post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee Benefits applies.









Control










5




An investor, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.














6




An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.














7




Thus, an investor controls an investee if and only if the investor has all the following:







(a)



power over the investee (see paragraphs 10–14);











(b)



exposure, or rights, to variable returns from its involvement with the investee (see paragraphs 15 and 16); and











(c)



the ability to use its power over the investee to affect the amount of the investor’s returns (see paragraphs 17 and 18).

















8


An investor shall consider all facts and circumstances when assessing whether it controls an investee. The investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in paragraph 7 (see paragraphs B80–B85).












9


Two or more investors collectively control an investee when they must act together to direct the relevant activities. In such cases, because no investor can direct the activities without the co-operation of the others, no investor individually controls the investee. Each investor would account for its interest in the investee in accordance with the relevant IFRSs, such as IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures or IFRS 9 Financial Instruments.






Power









10


An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, ie the activities that significantly affect the investee’s returns.












11


Power arises from rights. Sometimes assessing power is straightforward, such as when power over an investee is obtained directly and solely from the voting rights granted by equity instruments such as shares, and can be assessed by considering the voting rights from those shareholdings. In other cases, the assessment will be more complex and require more than one factor to be considered, for example when power results from one or more contractual arrangements.












12


An investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor has power, but such evidence is not, in itself, conclusive in determining whether the investor has power over an investee.












13


If two or more investors each have existing rights that give them the unilateral ability to direct different relevant activities, the investor that has the current ability to direct the activities that most significantly affect the returns of the investee has power over the investee.












14


An investor can have power over an investee even if other entities have existing rights that give them the current ability to participate in the direction of the relevant activities, for example when another entity has significant influence. However, an investor that holds only protective rights does not have power over an investee (see paragraphs B26–B28), and consequently does not control the investee.





Returns









15


An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or wholly positive and negative.












16


Although only one investor can control an investee, more than one party can share in the returns of an investee. For example, holders of non-controlling interests can share in the profits or distributions of an investee.





Link between power and returns









17


An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor’s returns from its involvement with the investee.












18


Thus, an investor with decision-making rights shall determine whether it is a principal or an agent. An investor that is an agent in accordance with paragraphs B58–B72 does not control an investee when it exercises decision-making rights delegated to it.




ACCOUNTING REQUIREMENTS









19




A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.













20


Consolidation of an investee shall begin from the date the investor obtains control of the investee and cease when the investor loses control of the investee.












21


Paragraphs B86–B93 set out guidance for the preparation of consolidated financial statements.





Non-controlling interests









22


A parent shall present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.












23


Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (ie transactions with owners in their capacity as owners).












24


Paragraphs B94–B96 set out guidance for the accounting for non-controlling interests in consolidated financial statements.





Loss of control









25


If a parent loses control of a subsidiary, the parent:






(a)


derecognises the assets and liabilities of the former subsidiary from the consolidated statement of financial position.










(b)


recognises any investment retained in the former subsidiary at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance with relevant IFRSs. That fair value shall be regarded as the fair value on initial recognition of a financial asset in accordance with IFRS 9 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture.










(c)


recognises the gain or loss associated with the loss of control attributable to the former controlling interest.
















26


Paragraphs B97–B99 set out guidance for the accounting for the loss of control.






Appendix A

Defined terms


This appendix is an integral part of the IFRS.







consolidated financial statements


The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.




control of an investee


An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.




decision maker


An entity with decision-making rights that is either a principal or an agent for other parties.




group


A parent and its subsidiaries.




non-controlling interest


Equity in a subsidiary not attributable, directly or indirectly, to a parent.




parent


An entity that controls one or more entities.




power


Existing rights that give the current ability to direct the relevant activities.




protective rights


Rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate.




relevant activities


For the purpose of this IFRS, relevant activities are activities of the investee that significantly affect the investee’s returns.




removal rights


Rights to deprive the decision maker of its decision-making authority.




subsidiary


An entity that is controlled by another entity.




The following terms are defined in IFRS 11, IFRS 12 Disclosure of Interests in Other Entities, IAS 28 (as amended in 2011) or IAS 24 Related Party Disclosures and are used in this IFRS with the meanings specified in those IFRSs:






—


associate










—


interest in another entity










—


joint venture










—


key management personnel










—


related party










—


significant influence.








Appendix B

Application guidance


This appendix is an integral part of the IFRS. It describes the application of paragraphs 1–26 and has the same authority as the other parts of the IFRS.









B1


The examples in this appendix portray hypothetical situations. Although some aspects of the examples may be present in actual fact patterns, all facts and circumstances of a particular fact pattern would need to be evaluated when applying IFRS 10.




ASSESSING CONTROL








B2


To determine whether it controls an investee an investor shall assess whether it has all the following:






(a)


power over the investee;










(b)


exposure, or rights, to variable returns from its involvement with the investee; and










(c)


the ability to use its power over the investee to affect the amount of the investor’s returns.
















B3


Consideration of the following factors may assist in making that determination:






(a)


the purpose and design of the investee (see paragraphs B5–B8);










(b)


what the relevant activities are and how decisions about those activities are made (see paragraphs B11–B13);










(c)


whether the rights of the investor give it the current ability to direct the relevant activities (see paragraphs B14–B54);










(d)


whether the investor is exposed, or has rights, to variable returns from its involvement with the investee (see paragraphs B55–B57); and










(e)


whether the investor has the ability to use its power over the investee to affect the amount of the investor’s returns (see paragraphs B58–B72).
















B4


When assessing control of an investee, an investor shall consider the nature of its relationship with other parties (see paragraphs B73–B75).





Purpose and design of an investee









B5


When assessing control of an investee, an investor shall consider the purpose and design of the investee in order to identify the relevant activities, how decisions about the relevant activities are made, who has the current ability to direct those activities and who receives returns from those activities.












B6


When an investee’s purpose and design are considered, it may be clear that an investee is controlled by means of equity instruments that give the holder proportionate voting rights, such as ordinary shares in the investee. In this case, in the absence of any additional arrangements that alter decision-making, the assessment of control focuses on which party, if any, is able to exercise voting rights sufficient to determine the investee’s operating and financing policies (see paragraphs B34–B50). In the most straightforward case, the investor that holds a majority of those voting rights, in the absence of any other factors, controls the investee.












B7


To determine whether an investor controls an investee in more complex cases, it may be necessary to consider some or all of the other factors in paragraph B3.












B8


An investee may be designed so that voting rights are not the dominant factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. In such cases, an investor’s consideration of the purpose and design of the investee shall also include consideration of the risks to which the investee was designed to be exposed, the risks it was designed to pass on to the parties involved with the investee and whether the investor is exposed to some or all of those risks. Consideration of the risks includes not only the downside risk, but also the potential for upside.





Power









B9


To have power over an investee, an investor must have existing rights that give it the current ability to direct the relevant activities. For the purpose of assessing power, only substantive rights and rights that are not protective shall be considered (see paragraphs B22–B28).












B10


The determination about whether an investor has power depends on the relevant activities, the way decisions about the relevant activities are made and the rights the investor and other parties have in relation to the investee.





Relevant activities and direction of relevant activities









B11


For many investees, a range of operating and financing activities significantly affect their returns. Examples of activities that, depending on the circumstances, can be relevant activities include, but are not limited to:






(a)


selling and purchasing of goods or services;










(b)


managing financial assets during their life (including upon default);










(c)


selecting, acquiring or disposing of assets;










(d)


researching and developing new products or processes; and










(e)


determining a funding structure or obtaining funding.
















B12


Examples of decisions about relevant activities include but are not limited to:






(a)


establishing operating and capital decisions of the investee, including budgets; and










(b)


appointing and remunerating an investee’s key management personnel or service providers and terminating their services or employment.
















B13


In some situations, activities both before and after a particular set of circumstances arises or event occurs may be relevant activities. When two or more investors have the current ability to direct relevant activities and those activities occur at different times, the investors shall determine which investor is able to direct the activities that most significantly affect those returns consistently with the treatment of concurrent decision-making rights (see paragraph 13). The investors shall reconsider this assessment over time if relevant facts or circumstances change.





Application examples


Example 1

Two investors form an investee to develop and market a medical product. One investor is responsible for developing and obtaining regulatory approval of the medical product—that responsibility includes having the unilateral ability to make all decisions relating to the development of the product and to obtaining regulatory approval. Once the regulator has approved the product, the other investor will manufacture and market it—this investor has the unilateral ability to make all decisions about the manufacture and marketing of the project. If all the activities—developing and obtaining regulatory approval as well as manufacturing and marketing of the medical product—are relevant activities, each investor needs to determine whether it is able to direct the activities that most significantly affect the investee’s returns. Accordingly, each investor needs to consider whether developing and obtaining regulatory approval or the manufacturing and marketing of the medical product is the activity that most significantly affects the investee’s returns and whether it is able to direct that activity. In determining which investor has power, the investors would consider:






(a)


the purpose and design of the investee;










(b)


the factors that determine the profit margin, revenue and value of the investee as well as the value of the medical product;










(c)


the effect on the investee’s returns resulting from each investor’s decision-making authority with respect to the factors in (b); and










(d)


the investors’ exposure to variability of returns.




In this particular example, the investors would also consider:






(e)


the uncertainty of, and effort required in, obtaining regulatory approval (considering the investor’s record of successfully developing and obtaining regulatory approval of medical products); and










(f)


which investor controls the medical product once the development phase is successful.





Example 2

An investment vehicle (the investee) is created and financed with a debt instrument held by an investor (the debt investor) and equity instruments held by a number of other investors. The equity tranche is designed to absorb the first losses and to receive any residual return from the investee. One of the equity investors who holds 30 per cent of the equity is also the asset manager. The investee uses its proceeds to purchase a portfolio of financial assets, exposing the investee to the credit risk associated with the possible default of principal and interest payments of the assets. The transaction is marketed to the debt investor as an investment with minimal exposure to the credit risk associated with the possible default of the assets in the portfolio because of the nature of these assets and because the equity tranche is designed to absorb the first losses of the investee. The returns of the investee are significantly affected by the management of the investee’s asset portfolio, which includes decisions about the selection, acquisition and disposal of the assets within portfolio guidelines and the management upon default of any portfolio assets. All those activities are managed by the asset manager until defaults reach a specified proportion of the portfolio value (ie when the value of the portfolio is such that the equity tranche of the investee has been consumed). From that time, a third-party trustee manages the assets according to the instructions of the debt investor. Managing the investee’s asset portfolio is the relevant activity of the investee. The asset manager has the ability to direct the relevant activities until defaulted assets reach the specified proportion of the portfolio value; the debt investor has the ability to direct the relevant activities when the value of defaulted assets surpasses that specified proportion of the portfolio value. The asset manager and the debt investor each need to determine whether they are able to direct the activities that most significantly affect the investee’s returns, including considering the purpose and design of the investee as well as each party’s exposure to variability of returns.

Rights that give an investor power over an investee









B14


Power arises from rights. To have power over an investee, an investor must have existing rights that give the investor the current ability to direct the relevant activities. The rights that may give an investor power can differ between investees.












B15


Examples of rights that, either individually or in combination, can give an investor power include but are not limited to:






(a)


rights in the form of voting rights (or potential voting rights) of an investee (see paragraphs B34–B50);










(b)


rights to appoint, reassign or remove members of an investee’s key management personnel who have the ability to direct the relevant activities;










(c)


rights to appoint or remove another entity that directs the relevant activities;










(d)


rights to direct the investee to enter into, or veto any changes to, transactions for the benefit of the investor; and










(e)


other rights (such as decision-making rights specified in a management contract) that give the holder the ability to direct the relevant activities.
















B16


Generally, when an investee has a range of operating and financing activities that significantly affect the investee’s returns and when substantive decision-making with respect to these activities is required continuously, it will be voting or similar rights that give an investor power, either individually or in combination with other arrangements.












B17


When voting rights cannot have a significant effect on an investee’s returns, such as when voting rights relate to administrative tasks only and contractual arrangements determine the direction of the relevant activities, the investor needs to assess those contractual arrangements in order to determine whether it has rights sufficient to give it power over the investee. To determine whether an investor has rights sufficient to give it power, the investor shall consider the purpose and design of the investee (see paragraphs B5–B8) and the requirements in paragraphs B51–B54 together with paragraphs B18–B20.












B18


In some circumstances it may be difficult to determine whether an investor’s rights are sufficient to give it power over an investee. In such cases, to enable the assessment of power to be made, the investor shall consider evidence of whether it has the practical ability to direct the relevant activities unilaterally. Consideration is given, but is not limited, to the following, which, when considered together with its rights and the indicators in paragraphs B19 and B20, may provide evidence that the investor’s rights are sufficient to give it power over the investee:






(a)


The investor can, without having the contractual right to do so, appoint or approve the investee’s key management personnel who have the ability to direct the relevant activities.










(b)


The investor can, without having the contractual right to do so, direct the investee to enter into, or can veto any changes to, significant transactions for the benefit of the investor.










(c)


The investor can dominate either the nominations process for electing members of the investee’s governing body or the obtaining of proxies from other holders of voting rights.










(d)


The investee’s key management personnel are related parties of the investor (for example, the chief executive officer of the investee and the chief executive officer of the investor are the same person).










(e)


The majority of the members of the investee’s governing body are related parties of the investor.
















B19


Sometimes there will be indications that the investor has a special relationship with the investee, which suggests that the investor has more than a passive interest in the investee. The existence of any individual indicator, or a particular combination of indicators, does not necessarily mean that the power criterion is met. However, having more than a passive interest in the investee may indicate that the investor has other related rights sufficient to give it power or provide evidence of existing power over an investee. For example, the following suggests that the investor has more than a passive interest in the investee and, in combination with other rights, may indicate power:






(a)


The investee’s key management personnel who have the ability to direct the relevant activities are current or previous employees of the investor.










(b)


The investee’s operations are dependent on the investor, such as in the following situations:






(i)


The investee depends on the investor to fund a significant portion of its operations.










(ii)


The investor guarantees a significant portion of the investee’s obligations.










(iii)


The investee depends on the investor for critical services, technology, supplies or raw materials.










(iv)


The investor controls assets such as licences or trademarks that are critical to the investee’s operations.










(v)


The investee depends on the investor for key management personnel, such as when the investor’s personnel have specialised knowledge of the investee’s operations.














(c)


A significant portion of the investee’s activities either involve or are conducted on behalf of the investor.










(d)


The investor’s exposure, or rights, to returns from its involvement with the investee is disproportionately greater than its voting or other similar rights. For example, there may be a situation in which an investor is entitled, or exposed, to more than half of the returns of the investee but holds less than half of the voting rights of the investee.
















B20


The greater an investor’s exposure, or rights, to variability of returns from its involvement with an investee, the greater is the incentive for the investor to obtain rights sufficient to give it power. Therefore, having a large exposure to variability of returns is an indicator that the investor may have power. However, the extent of the investor’s exposure does not, in itself, determine whether an investor has power over the investee.












B21


When the factors set out in paragraph B18 and the indicators set out in paragraphs B19 and B20 are considered together with an investor’s rights, greater weight shall be given to the evidence of power described in paragraph B18.





Substantive rights









B22


An investor, in assessing whether it has power, considers only substantive rights relating to an investee (held by the investor and others). For a right to be substantive, the holder must have the practical ability to exercise that right.












B23


Determining whether rights are substantive requires judgement, taking into account all facts and circumstances. Factors to consider in making that determination include but are not limited to:






(a)


Whether there are any barriers (economic or otherwise) that prevent the holder (or holders) from exercising the rights. Examples of such barriers include but are not limited to:






(i)


financial penalties and incentives that would prevent (or deter) the holder from exercising its rights.










(ii)


an exercise or conversion price that creates a financial barrier that would prevent (or deter) the holder from exercising its rights.










(iii)


terms and conditions that make it unlikely that the rights would be exercised, for example, conditions that narrowly limit the timing of their exercise.










(iv)


the absence of an explicit, reasonable mechanism in the founding documents of an investee or in applicable laws or regulations that would allow the holder to exercise its rights.










(v)


the inability of the holder of the rights to obtain the information necessary to exercise its rights.










(vi)


operational barriers or incentives that would prevent (or deter) the holder from exercising its rights (eg the absence of other managers willing or able to provide specialised services or provide the services and take on other interests held by the incumbent manager).










(vii)


legal or regulatory requirements that prevent the holder from exercising its rights (eg where a foreign investor is prohibited from exercising its rights).














(b)


When the exercise of rights requires the agreement of more than one party, or when the rights are held by more than one party, whether a mechanism is in place that provides those parties with the practical ability to exercise their rights collectively if they choose to do so. The lack of such a mechanism is an indicator that the rights may not be substantive. The more parties that are required to agree to exercise the rights, the less likely it is that those rights are substantive. However, a board of directors whose members are independent of the decision maker may serve as a mechanism for numerous investors to act collectively in exercising their rights. Therefore, removal rights exercisable by an independent board of directors are more likely to be substantive than if the same rights were exercisable individually by a large number of investors.










(c)


Whether the party or parties that hold the rights would benefit from the exercise of those rights. For example, the holder of potential voting rights in an investee (see paragraphs B47–B50) shall consider the exercise or conversion price of the instrument. The terms and conditions of potential voting rights are more likely to be substantive when the instrument is in the money or the investor would benefit for other reasons (eg by realising synergies between the investor and the investee) from the exercise or conversion of the instrument.
















B24


To be substantive, rights also need to be exercisable when decisions about the direction of the relevant activities need to be made. Usually, to be substantive, the rights need to be currently exercisable. However, sometimes rights can be substantive, even though the rights are not currently exercisable.





Application examples


Example 3

The investee has annual shareholder meetings at which decisions to direct the relevant activities are made. The next scheduled shareholders’ meeting is in eight months. However, shareholders that individually or collectively hold at least 5 per cent of the voting rights can call a special meeting to change the existing policies over the relevant activities, but a requirement to give notice to the other shareholders means that such a meeting cannot be held for at least 30 days. Policies over the relevant activities can be changed only at special or scheduled shareholders’ meetings. This includes the approval of material sales of assets as well as the making or disposing of significant investments.
The above fact pattern applies to examples 3A–3D described below. Each example is considered in isolation.

Example 3A

An investor holds a majority of the voting rights in the investee. The investor’s voting rights are substantive because the investor is able to make decisions about the direction of the relevant activities when they need to be made. The fact that it takes 30 days before the investor can exercise its voting rights does not stop the investor from having the current ability to direct the relevant activities from the moment the investor acquires the shareholding.

Example 3B

An investor is party to a forward contract to acquire the majority of shares in the investee. The forward contract’s settlement date is in 25 days. The existing shareholders are unable to change the existing policies over the relevant activities because a special meeting cannot be held for at least 30 days, at which point the forward contract will have been settled. Thus, the investor has rights that are essentially equivalent to the majority shareholder in example 3A above (ie the investor holding the forward contract can make decisions about the direction of the relevant activities when they need to be made). The investor’s forward contract is a substantive right that gives the investor the current ability to direct the relevant activities even before the forward contract is settled.

Example 3C

An investor holds a substantive option to acquire the majority of shares in the investee that is exercisable in 25 days and is deeply in the money. The same conclusion would be reached as in example 3B.

Example 3D

An investor is party to a forward contract to acquire the majority of shares in the investee, with no other related rights over the investee. The forward contract’s settlement date is in six months. In contrast to the examples above, the investor does not have the current ability to direct the relevant activities. The existing shareholders have the current ability to direct the relevant activities because they can change the existing policies over the relevant activities before the forward contract is settled.








B25


Substantive rights exercisable by other parties can prevent an investor from controlling the investee to which those rights relate. Such substantive rights do not require the holders to have the ability to initiate decisions. As long as the rights are not merely protective (see paragraphs B26–B28), substantive rights held by other parties may prevent the investor from controlling the investee even if the rights give the holders only the current ability to approve or block decisions that relate to the relevant activities.





Protective rights









B26


In evaluating whether rights give an investor power over an investee, the investor shall assess whether its rights, and rights held by others, are protective rights. Protective rights relate to fundamental changes to the activities of an investee or apply in exceptional circumstances. However, not all rights that apply in exceptional circumstances or are contingent on events are protective (see paragraphs B13 and B53).












B27


Because protective rights are designed to protect the interests of their holder without giving that party power over the investee to which those rights relate, an investor that holds only protective rights cannot have power or prevent another party from having power over an investee (see paragraph 14).












B28


Examples of protective rights include but are not limited to:






(a)


a lender’s right to restrict a borrower from undertaking activities that could significantly change the credit risk of the borrower to the detriment of the lender.










(b)


the right of a party holding a non-controlling interest in an investee to approve capital expenditure greater than that required in the ordinary course of business, or to approve the issue of equity or debt instruments.










(c)


the right of a lender to seize the assets of a borrower if the borrower fails to meet specified loan repayment conditions.









Franchises









B29


A franchise agreement for which the investee is the franchisee often gives the franchisor rights that are designed to protect the franchise brand. Franchise agreements typically give franchisors some decision-making rights with respect to the operations of the franchisee.












B30


Generally, franchisors’ rights do not restrict the ability of parties other than the franchisor to make decisions that have a significant effect on the franchisee’s returns. Nor do the rights of the franchisor in franchise agreements necessarily give the franchisor the current ability to direct the activities that significantly affect the franchisee’s returns.












B31


It is necessary to distinguish between having the current ability to make decisions that significantly affect the franchisee’s returns and having the ability to make decisions that protect the franchise brand. The franchisor does not have power over the franchisee if other parties have existing rights that give them the current ability to direct the relevant activities of the franchisee.












B32


By entering into the franchise agreement the franchisee has made a unilateral decision to operate its business in accordance with the terms of the franchise agreement, but for its own account.












B33


Control over such fundamental decisions as the legal form of the franchisee and its funding structure may be determined by parties other than the franchisor and may significantly affect the returns of the franchisee. The lower the level of financial support provided by the franchisor and the lower the franchisor’s exposure to variability of returns from the franchisee the more likely it is that the franchisor has only protective rights.





Voting rights









B34


Often an investor has the current ability, through voting or similar rights, to direct the relevant activities. An investor considers the requirements in this section (paragraphs B35–B50) if the relevant activities of an investee are directed through voting rights.





Power with a majority of the voting rights









B35


An investor that holds more than half of the voting rights of an investee has power in the following situations, unless paragraph B36 or paragraph B37 applies:






(a)


the relevant activities are directed by a vote of the holder of the majority of the voting rights, or










(b)


a majority of the members of the governing body that directs the relevant activities are appointed by a vote of the holder of the majority of the voting rights.









Majority of the voting rights but no power









B36


For an investor that holds more than half of the voting rights of an investee, to have power over an investee, the investor’s voting rights must be substantive, in accordance with paragraphs B22–B25, and must provide the investor with the current ability to direct the relevant activities, which often will be through determining operating and financing policies. If another entity has existing rights that provide that entity with the right to direct the relevant activities and that entity is not an agent of the investor, the investor does not have power over the investee.












B37


An investor does not have power over an investee, even though the investor holds the majority of the voting rights in the investee, when those voting rights are not substantive. For example, an investor that has more than half of the voting rights in an investee cannot have power if the relevant activities are subject to direction by a government, court, administrator, receiver, liquidator or regulator.





Power without a majority of the voting rights









B38


An investor can have power even if it holds less than a majority of the voting rights of an investee. An investor can have power with less than a majority of the voting rights of an investee, for example, through:






(a)


a contractual arrangement between the investor and other vote holders (see paragraph B39);










(b)


rights arising from other contractual arrangements (see paragraph B40);










(c)


the investor’s voting rights (see paragraphs B41–B45);










(d)


potential voting rights (see paragraphs B47–B50); or










(e)


a combination of (a)–(d).









Contractual arrangement with other vote holders









B39


A contractual arrangement between an investor and other vote holders can give the investor the right to exercise voting rights sufficient to give the investor power, even if the investor does not have voting rights sufficient to give it power without the contractual arrangement. However, a contractual arrangement might ensure that the investor can direct enough other vote holders on how to vote to enable the investor to make decisions about the relevant activities.





Rights from other contractual arrangements









B40


Other decision-making rights, in combination with voting rights, can give an investor the current ability to direct the relevant activities. For example, the rights specified in a contractual arrangement in combination with voting rights may be sufficient to give an investor the current ability to direct the manufacturing processes of an investee or to direct other operating or financing activities of an investee that significantly affect the investee’s returns. However, in the absence of any other rights, economic dependence of an investee on the investor (such as relations of a supplier with its main customer) does not lead to the investor having power over the investee.





The investor’s voting rights









B41


An investor with less than a majority of the voting rights has rights that are sufficient to give it power when the investor has the practical ability to direct the relevant activities unilaterally.












B42


When assessing whether an investor’s voting rights are sufficient to give it power, an investor considers all facts and circumstances, including:






(a)


the size of the investor’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders, noting that:






(i)


the more voting rights an investor holds, the more likely the investor is to have existing rights that give it the current ability to direct the relevant activities;










(ii)


the more voting rights an investor holds relative to other vote holders, the more likely the investor is to have existing rights that give it the current ability to direct the relevant activities;










(iii)


the more parties that would need to act together to outvote the investor, the more likely the investor is to have existing rights that give it the current ability to direct the relevant activities;














(b)


potential voting rights held by the investor, other vote holders or other parties (see paragraphs B47–B50);










(c)


rights arising from other contractual arrangements (see paragraph B40); and










(d)


any additional facts and circumstances that indicate the investor has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
















B43


When the direction of relevant activities is determined by majority vote and an investor holds significantly more voting rights than any other vote holder or organised group of vote holders, and the other shareholdings are widely dispersed, it may be clear, after considering the factors listed in paragraph 42(a)–(c) alone, that the investor has power over the investee.





Application examples


Example 4

An investor acquires 48 per cent of the voting rights of an investee. The remaining voting rights are held by thousands of shareholders, none individually holding more than 1 per cent of the voting rights. None of the shareholders has any arrangements to consult any of the others or make collective decisions. When assessing the proportion of voting rights to acquire, on the basis of the relative size of the other shareholdings, the investor determined that a 48 per cent interest would be sufficient to give it control. In this case, on the basis of the absolute size of its holding and the relative size of the other shareholdings, the investor concludes that it has a sufficiently dominant voting interest to meet the power criterion without the need to consider any other evidence of power.

Example 5

Investor A holds 40 per cent of the voting rights of an investee and twelve other investors each hold 5 per cent of the voting rights of the investee. A shareholder agreement grants investor A the right to appoint, remove and set the remuneration of management responsible for directing the relevant activities. To change the agreement, a two-thirds majority vote of the shareholders is required. In this case, investor A concludes that the absolute size of the investor’s holding and the relative size of the other shareholdings alone are not conclusive in determining whether the investor has rights sufficient to give it power. However, investor A determines that its contractual right to appoint, remove and set the remuneration of management is sufficient to conclude that it has power over the investee. The fact that investor A might not have exercised this right or the likelihood of investor A exercising its right to select, appoint or remove management shall not be considered when assessing whether investor A has power.








B44


In other situations, it may be clear after considering the factors listed in paragraph B42(a)–(c) alone that an investor does not have power.





Application example


Example 6

Investor A holds 45 per cent of the voting rights of an investee. Two other investors each hold 26 per cent of the voting rights of the investee. The remaining voting rights are held by three other shareholders, each holding 1 per cent. There are no other arrangements that affect decision-making. In this case, the size of investor A’s voting interest and its size relative to the other shareholdings are sufficient to conclude that investor A does not have power. Only two other investors would need to co-operate to be able to prevent investor A from directing the relevant activities of the investee.








B45


However, the factors listed in paragraph B42(a)–(c) alone may not be conclusive. If an investor, having considered those factors, is unclear whether it has power, it shall consider additional facts and circumstances, such as whether other shareholders are passive in nature as demonstrated by voting patterns at previous shareholders’ meetings. This includes the assessment of the factors set out in paragraph B18 and the indicators in paragraphs B19 and B20. The fewer voting rights the investor holds, and the fewer parties that would need to act together to outvote the investor, the more reliance would be placed on the additional facts and circumstances to assess whether the investor’s rights are sufficient to give it power. When the facts and circumstances in paragraphs B18–B20 are considered together with the investor’s rights, greater weight shall be given to the evidence of power in paragraph B18 than to the indicators of power in paragraphs B19 and B20.





Application examples


Example 7

An investor holds 45 per cent of the voting rights of an investee. Eleven other shareholders each hold 5 per cent of the voting rights of the investee. None of the shareholders has contractual arrangements to consult any of the others or make collective decisions. In this case, the absolute size of the investor’s holding and the relative size of the other shareholdings alone are not conclusive in determining whether the investor has rights sufficient to give it power over the investee. Additional facts and circumstances that may provide evidence that the investor has, or does not have, power shall be considered.

Example 8

An investor holds 35 per cent of the voting rights of an investee. Three other shareholders each hold 5 per cent of the voting rights of the investee. The remaining voting rights are held by numerous other shareholders, none individually holding more than 1 per cent of the voting rights. None of the shareholders has arrangements to consult any of the others or make collective decisions. Decisions about the relevant activities of the investee require the approval of a majority of votes cast at relevant shareholders’ meetings—75 per cent of the voting rights of the investee have been cast at recent relevant shareholders’ meetings. In this case, the active participation of the other shareholders at recent shareholders’ meetings indicates that the investor would not have the practical ability to direct the relevant activities unilaterally, regardless of whether the investor has directed the relevant activities because a sufficient number of other shareholders voted in the same way as the investor.








B46


If it is not clear, having considered the factors listed in paragraph B42(a)–(d), that the investor has power, the investor does not control the investee.





Potential voting rights









B47


When assessing control, an investor considers its potential voting rights as well as potential voting rights held by other parties, to determine whether it has power. Potential voting rights are rights to obtain voting rights of an investee, such as those arising from convertible instruments or options, including forward contracts. Those potential voting rights are considered only if the rights are substantive (see paragraphs B22–B25).












B48


When considering potential voting rights, an investor shall consider the purpose and design of the instrument, as well as the purpose and design of any other involvement the investor has with the investee. This includes an assessment of the various terms and conditions of the instrument as well as the investor’s apparent expectations, motives and reasons for agreeing to those terms and conditions.












B49


If the investor also has voting or other decision-making rights relating to the investee’s activities, the investor assesses whether those rights, in combination with potential voting rights, give the investor power.












B50


Substantive potential voting rights alone, or in combination with other rights, can give an investor the current ability to direct the relevant activities. For example, this is likely to be the case when an investor holds 40 per cent of the voting rights of an investee and, in accordance with paragraph B23, holds substantive rights arising from options to acquire a further 20 per cent of the voting rights.





Application examples


Example 9

Investor A holds 70 per cent of the voting rights of an investee. Investor B has 30 per cent of the voting rights of the investee as well as an option to acquire half of investor A’s voting rights. The option is exercisable for the next two years at a fixed price that is deeply out of the money (and is expected to remain so for that two-year period). Investor A has been exercising its votes and is actively directing the relevant activities of the investee. In such a case, investor A is likely to meet the power criterion because it appears to have the current ability to direct the relevant activities. Although investor B has currently exercisable options to purchase additional voting rights (that, if exercised, would give it a majority of the voting rights in the investee), the terms and conditions associated with those options are such that the options are not considered substantive.

Example 10

Investor A and two other investors each hold a third of the voting rights of an investee. The investee’s business activity is closely related to investor A. In addition to its equity instruments, investor A also holds debt instruments that are convertible into ordinary shares of the investee at any time for a fixed price that is out of the money (but not deeply out of the money). If the debt were converted, investor A would hold 60 per cent of the voting rights of the investee. Investor A would benefit from realising synergies if the debt instruments were converted into ordinary shares. Investor A has power over the investee because it holds voting rights of the investee together with substantive potential voting rights that give it the current ability to direct the relevant activities.

Power when voting or similar rights do not have a significant effect on the investee’s returns









B51


In assessing the purpose and design of an investee (see paragraphs B5–B8), an investor shall consider the involvement and decisions made at the investee’s inception as part of its design and evaluate whether the transaction terms and features of the involvement provide the investor with rights that are sufficient to give it power. Being involved in the design of an investee alone is not sufficient to give an investor control. However, involvement in the design may indicate that the investor had the opportunity to obtain rights that are sufficient to give it power over the investee.












B52


In addition, an investor shall consider contractual arrangements such as call rights, put rights and liquidation rights established at the investee’s inception. When these contractual arrangements involve activities that are closely related to the investee, then these activities are, in substance, an integral part of the investee’s overall activities, even though they may occur outside the legal boundaries of the investee. Therefore, explicit or implicit decision-making rights embedded in contractual arrangements that are closely related to the investee need to be considered as relevant activities when determining power over the investee.












B53


For some investees, relevant activities occur only when particular circumstances arise or events occur. The investee may be designed so that the direction of its activities and its returns are predetermined unless and until those particular circumstances arise or events occur. In this case, only the decisions about the investee’s activities when those circumstances or events occur can significantly affect its returns and thus be relevant activities. The circumstances or events need not have occurred for an investor with the ability to make those decisions to have power. The fact that the right to make decisions is contingent on circumstances arising or an event occurring does not, in itself, make those rights protective.





Application examples


Example 11

An investee’s only business activity, as specified in its founding documents, is to purchase receivables and service them on a day-to-day basis for its investors. The servicing on a day-to-day basis includes the collection and passing on of principal and interest payments as they fall due. Upon default of a receivable the investee automatically puts the receivable to an investor as agreed separately in a put agreement between the investor and the investee. The only relevant activity is managing the receivables upon default because it is the only activity that can significantly affect the investee’s returns. Managing the receivables before default is not a relevant activity because it does not require substantive decisions to be made that could significantly affect the investee’s returns—the activities before default are predetermined and amount only to collecting cash flows as they fall due and passing them on to investors. Therefore, only the investor’s right to manage the assets upon default should be considered when assessing the overall activities of the investee that significantly affect the investee’s returns. In this example, the design of the investee ensures that the investor has decision-making authority over the activities that significantly affect the returns at the only time that such decision-making authority is required. The terms of the put agreement are integral to the overall transaction and the establishment of the investee. Therefore, the terms of the put agreement together with the founding documents of the investee lead to the conclusion that the investor has power over the investee even though the investor takes ownership of the receivables only upon default and manages the defaulted receivables outside the legal boundaries of the investee.

Example 12

The only assets of an investee are receivables. When the purpose and design of the investee are considered, it is determined that the only relevant activity is managing the receivables upon default. The party that has the ability to manage the defaulting receivables has power over the investee, irrespective of whether any of the borrowers have defaulted.








B54


An investor may have an explicit or implicit commitment to ensure that an investee continues to operate as designed. Such a commitment may increase the investor’s exposure to variability of returns and thus increase the incentive for the investor to obtain rights sufficient to give it power. Therefore a commitment to ensure that an investee operates as designed may be an indicator that the investor has power, but does not, by itself, give an investor power, nor does it prevent another party from having power.





Exposure, or rights, to variable returns from an investee









B55


When assessing whether an investor has control of an investee, the investor determines whether it is exposed, or has rights, to variable returns from its involvement with the investee.












B56


Variable returns are returns that are not fixed and have the potential to vary as a result of the performance of an investee. Variable returns can be only positive, only negative or both positive and negative (see paragraph 15). An investor assesses whether returns from an investee are variable and how variable those returns are on the basis of the substance of the arrangement and regardless of the legal form of the returns. For example, an investor can hold a bond with fixed interest payments. The fixed interest payments are variable returns for the purpose of this IFRS because they are subject to default risk and they expose the investor to the credit risk of the issuer of the bond. The amount of variability (ie how variable those returns are) depends on the credit risk of the bond. Similarly, fixed performance fees for managing an investee’s assets are variable returns because they expose the investor to the performance risk of the investee. The amount of variability depends on the investee’s ability to generate sufficient income to pay the fee.












B57


Examples of returns include:






(a)


dividends, other distributions of economic benefits from an investee (eg interest from debt securities issued by the investee) and changes in the value of the investor’s investment in that investee.










(b)


remuneration for servicing an investee’s assets or liabilities, fees and exposure to loss from providing credit or liquidity support, residual interests in the investee’s assets and liabilities on liquidation of that investee, tax benefits, and access to future liquidity that an investor has from its involvement with an investee.










(c)


returns that are not available to other interest holders. For example, an investor might use its assets in combination with the assets of the investee, such as combining operating functions to achieve economies of scale, cost savings, sourcing scarce products, gaining access to proprietary knowledge or limiting some operations or assets, to enhance the value of the investor’s other assets.









Link between power and returns


Delegated power









B58


When an investor with decision-making rights (a decision maker) assesses whether it controls an investee, it shall determine whether it is a principal or an agent. An investor shall also determine whether another entity with decision-making rights is acting as an agent for the investor. An agent is a party primarily engaged to act on behalf and for the benefit of another party or parties (the principal(s)) and therefore does not control the investee when it exercises its decision-making authority (see paragraphs 17 and 18). Thus, sometimes a principal’s power may be held and exercisable by an agent, but on behalf of the principal. A decision maker is not an agent simply because other parties can benefit from the decisions that it makes.












B59


An investor may delegate its decision-making authority to an agent on some specific issues or on all relevant activities. When assessing whether it controls an investee, the investor shall treat the decision-making rights delegated to its agent as held by the investor directly. In situations where there is more than one principal, each of the principals shall assess whether it has power over the investee by considering the requirements in paragraphs B5–B54. Paragraphs B60–B72 provide guidance on determining whether a decision maker is an agent or a principal.












B60


A decision maker shall consider the overall relationship between itself, the investee being managed and other parties involved with the investee, in particular all the factors below, in determining whether it is an agent:






(a)


the scope of its decision-making authority over the investee (paragraphs B62 and B63).










(b)


the rights held by other parties (paragraphs B64–B67).










(c)


the remuneration to which it is entitled in accordance with the remuneration agreement(s) (paragraphs B68–B70).










(d)


the decision maker’s exposure to variability of returns from other interests that it holds in the investee (paragraphs B71 and B72).




Different weightings shall be applied to each of the factors on the basis of particular facts and circumstances.












B61


Determining whether a decision maker is an agent requires an evaluation of all the factors listed in paragraph B60 unless a single party holds substantive rights to remove the decision maker (removal rights) and can remove the decision maker without cause (see paragraph B65).





The scope of the decision-making authority









B62


The scope of a decision maker’s decision-making authority is evaluated by considering:






(a)


the activities that are permitted according to the decision-making agreement(s) and specified by law, and










(b)


the discretion that the decision maker has when making decisions about those activities.
















B63


A decision maker shall consider the purpose and design of the investee, the risks to which the investee was designed to be exposed, the risks it was designed to pass on to the parties involved and the level of involvement the decision maker had in the design of an investee. For example, if a decision maker is significantly involved in the design of the investee (including in determining the scope of decision-making authority), that involvement may indicate that the decision maker had the opportunity and incentive to obtain rights that result in the decision maker having the ability to direct the relevant activities.





Rights held by other parties









B64


Substantive rights held by other parties may affect the decision maker’s ability to direct the relevant activities of an investee. Substantive removal or other rights may indicate that the decision maker is an agent.












B65


When a single party holds substantive removal rights and can remove the decision maker without cause, this, in isolation, is sufficient to conclude that the decision maker is an agent. If more than one party holds such rights (and no individual party can remove the decision maker without the agreement of other parties) those rights are not, in isolation, conclusive in determining that a decision maker acts primarily on behalf and for the benefit of others. In addition, the greater the number of parties required to act together to exercise rights to remove a decision maker and the greater the magnitude of, and variability associated with, the decision maker’s other economic interests (ie remuneration and other interests), the less the weighting that shall be placed on this factor.












B66


Substantive rights held by other parties that restrict a decision maker’s discretion shall be considered in a similar manner to removal rights when evaluating whether the decision maker is an agent. For example, a decision maker that is required to obtain approval from a small number of other parties for its actions is generally an agent. (See paragraphs B22–B25 for additional guidance on rights and whether they are substantive.)












B67


Consideration of the rights held by other parties shall include an assessment of any rights exercisable by an investee’s board of directors (or other governing body) and their effect on the decision-making authority (see paragraph B23(b)).





Remuneration









B68


The greater the magnitude of, and variability associated with, the decision maker’s remuneration relative to the returns expected from the activities of the investee, the more likely the decision maker is a principal.












B69


In determining whether it is a principal or an agent the decision maker shall also consider whether the following conditions exist:






(a)


The remuneration of the decision maker is commensurate with the services provided.










(b)


The remuneration agreement includes only terms, conditions or amounts that are customarily present in arrangements for similar services and level of skills negotiated on an arm’s length basis.
















B70


A decision maker cannot be an agent unless the conditions set out in paragraph B69(a) and (b) are present. However, meeting those conditions in isolation is not sufficient to conclude that a decision maker is an agent.





Exposure to variability of returns from other interests









B71


A decision maker that holds other interests in an investee (eg investments in the investee or provides guarantees with respect to the performance of the investee), shall consider its exposure to variability of returns from those interests in assessing whether it is an agent. Holding other interests in an investee indicates that the decision maker may be a principal.












B72


In evaluating its exposure to variability of returns from other interests in the investee a decision maker shall consider the following:






(a)


the greater the magnitude of, and variability associated with, its economic interests, considering its remuneration and other interests in aggregate, the more likely the decision maker is a principal.










(b)


whether its exposure to variability of returns is different from that of the other investors and, if so, whether this might influence its actions. For example, this might be the case when a decision maker holds subordinated interests in, or provides other forms of credit enhancement to, an investee.




The decision maker shall evaluate its exposure relative to the total variability of returns of the investee. This evaluation is made primarily on the basis of returns expected from the activities of the investee but shall not ignore the decision maker’s maximum exposure to variability of returns of the investee through other interests that the decision maker holds.





Application examples


Example 13

A decision maker (fund manager) establishes, markets and manages a publicly traded, regulated fund according to narrowly defined parameters set out in the investment mandate as required by its local laws and regulations. The fund was marketed to investors as an investment in a diversified portfolio of equity securities of publicly traded entities. Within the defined parameters, the fund manager has discretion about the assets in which to invest. The fund manager has made a 10 per cent pro rata investment in the fund and receives a market-based fee for its services equal to 1 per cent of the net asset value of the fund. The fees are commensurate with the services provided. The fund manager does not have any obligation to fund losses beyond its 10 per cent investment. The fund is not required to establish, and has not established, an independent board of directors. The investors do not hold any substantive rights that would affect the decision-making authority of the fund manager, but can redeem their interests within particular limits set by the fund.
Although operating within the parameters set out in the investment mandate and in accordance with the regulatory requirements, the fund manager has decision-making rights that give it the current ability to direct the relevant activities of the fund—the investors do not hold substantive rights that could affect the fund manager’s decision-making authority. The fund manager receives a market-based fee for its services that is commensurate with the services provided and has also made a pro rata investment in the fund. The remuneration and its investment expose the fund manager to variability of returns from the activities of the fund without creating exposure that is of such significance that it indicates that the fund manager is a principal.
In this example, consideration of the fund manager’s exposure to variability of returns from the fund together with its decision-making authority within restricted parameters indicates that the fund manager is an agent. Thus, the fund manager concludes that it does not control the fund.

Example 14

A decision maker establishes, markets and manages a fund that provides investment opportunities to a number of investors. The decision maker (fund manager) must make decisions in the best interests of all investors and in accordance with the fund’s governing agreements. Nonetheless, the fund manager has wide decision-making discretion. The fund manager receives a market-based fee for its services equal to 1 per cent of assets under management and 20 per cent of all the fund’s profits if a specified profit level is achieved. The fees are commensurate with the services provided.
Although it must make decisions in the best interests of all investors, the fund manager has extensive decision-making authority to direct the relevant activities of the fund. The fund manager is paid fixed and performance-related fees that are commensurate with the services provided. In addition, the remuneration aligns the interests of the fund manager with those of the other investors to increase the value of the fund, without creating exposure to variability of returns from the activities of the fund that is of such significance that the remuneration, when considered in isolation, indicates that the fund manager is a principal.
The above fact pattern and analysis applies to examples 14A–14C described below. Each example is considered in isolation.

Example 14A

The fund manager also has a 2 per cent investment in the fund that aligns its interests with those of the other investors. The fund manager does not have any obligation to fund losses beyond its 2 per cent investment. The investors can remove the fund manager by a simple majority vote, but only for breach of contract.
The fund manager’s 2 per cent investment increases its exposure to variability of returns from the activities of the fund without creating exposure that is of such significance that it indicates that the fund manager is a principal. The other investors’ rights to remove the fund manager are considered to be protective rights because they are exercisable only for breach of contract. In this example, although the fund manager has extensive decision-making authority and is exposed to variability of returns from its interest and remuneration, the fund manager’s exposure indicates that the fund manager is an agent. Thus, the fund manager concludes that it does not control the fund.

Example 14B

The fund manager has a more substantial pro rata investment in the fund, but does not have any obligation to fund losses beyond that investment. The investors can remove the fund manager by a simple majority vote, but only for breach of contract.
In this example, the other investors’ rights to remove the fund manager are considered to be protective rights because they are exercisable only for breach of contract. Although the fund manager is paid fixed and performance-related fees that are commensurate with the services provided, the combination of the fund manager’s investment together with its remuneration could create exposure to variability of returns from the activities of the fund that is of such significance that it indicates that the fund manager is a principal. The greater the magnitude of, and variability associated with, the fund manager’s economic interests (considering its remuneration and other interests in aggregate), the more emphasis the fund manager would place on those economic interests in the analysis, and the more likely the fund manager is a principal.
For example, having considered its remuneration and the other factors, the fund manager might consider a 20 per cent investment to be sufficient to conclude that it controls the fund. However, in different circumstances (ie if the remuneration or other factors are different), control may arise when the level of investment is different.

Example 14C

The fund manager has a 20 per cent pro rata investment in the fund, but does not have any obligation to fund losses beyond its 20 per cent investment. The fund has a board of directors, all of whose members are independent of the fund manager and are appointed by the other investors. The board appoints the fund manager annually. If the board decided not to renew the fund manager’s contract, the services performed by the fund manager could be performed by other managers in the industry.
Although the fund manager is paid fixed and performance-related fees that are commensurate with the services provided, the combination of the fund manager’s 20 per cent investment together with its remuneration creates exposure to variability of returns from the activities of the fund that is of such significance that it indicates that the fund manager is a principal. However, the investors have substantive rights to remove the fund manager—the board of directors provides a mechanism to ensure that the investors can remove the fund manager if they decide to do so.
In this example, the fund manager places greater emphasis on the substantive removal rights in the analysis. Thus, although the fund manager has extensive decision-making authority and is exposed to variability of returns of the fund from its remuneration and investment, the substantive rights held by the other investors indicate that the fund manager is an agent. Thus, the fund manager concludes that it does not control the fund.

Example 15

An investee is created to purchase a portfolio of fixed rate asset-backed securities, funded by fixed rate debt instruments and equity instruments. The equity instruments are designed to provide first loss protection to the debt investors and receive any residual returns of the investee. The transaction was marketed to potential debt investors as an investment in a portfolio of asset-backed securities with exposure to the credit risk associated with the possible default of the issuers of the asset-backed securities in the portfolio and to the interest rate risk associated with the management of the portfolio. On formation, the equity instruments represent 10 per cent of the value of the assets purchased. A decision maker (the asset manager) manages the active asset portfolio by making investment decisions within the parameters set out in the investee’s prospectus. For those services, the asset manager receives a market-based fixed fee (ie 1 per cent of assets under management) and performance-related fees (ie 10 per cent of profits) if the investee’s profits exceed a specified level. The fees are commensurate with the services provided. The asset manager holds 35 per cent of the equity in the investee.
The remaining 65 per cent of the equity, and all the debt instruments, are held by a large number of widely dispersed unrelated third party investors. The asset manager can be removed, without cause, by a simple majority decision of the other investors.
The asset manager is paid fixed and performance-related fees that are commensurate with the services provided. The remuneration aligns the interests of the fund manager with those of the other investors to increase the value of the fund. The asset manager has exposure to variability of returns from the activities of the fund because it holds 35 per cent of the equity and from its remuneration.
Although operating within the parameters set out in the investee’s prospectus, the asset manager has the current ability to make investment decisions that significantly affect the investee’s returns—the removal rights held by the other investors receive little weighting in the analysis because those rights are held by a large number of widely dispersed investors. In this example, the asset manager places greater emphasis on its exposure to variability of returns of the fund from its equity interest, which is subordinate to the debt instruments. Holding 35 per cent of the equity creates subordinated exposure to losses and rights to returns of the investee, which are of such significance that it indicates that the asset manager is a principal. Thus, the asset manager concludes that it controls the investee.

Example 16

A decision maker (the sponsor) sponsors a multi-seller conduit, which issues short-term debt instruments to unrelated third party investors. The transaction was marketed to potential investors as an investment in a portfolio of highly rated medium-term assets with minimal exposure to the credit risk associated with the possible default by the issuers of the assets in the portfolio. Various transferors services sell high quality medium-term asset portfolios to the conduit. Each transferor the portfolio of assets that it sells to the conduit and manages receivables on default for a market-based servicing fee. Each transferor also provides first loss protection against credit losses from its asset portfolio through over-collateralisation of the assets transferred to the conduit. The sponsor establishes the terms of the conduit and manages the operations of the conduit for a market-based fee. The fee is commensurate with the services provided. The sponsor approves the sellers permitted to sell to the conduit, approves the assets to be purchased by the conduit and makes decisions about the funding of the conduit. The sponsor must act in the best interests of all investors.
The sponsor is entitled to any residual return of the conduit and also provides credit enhancement and liquidity facilities to the conduit. The credit enhancement provided by the sponsor absorbs losses of up to 5 per cent of all of the conduit’s assets, after losses are absorbed by the transferors. The liquidity facilities are not advanced against defaulted assets. The investors do not hold substantive rights that could affect the decision-making authority of the sponsor.
Even though the sponsor is paid a market-based fee for its services that is commensurate with the services provided, the sponsor has exposure to variability of returns from the activities of the conduit because of its rights to any residual returns of the conduit and the provision of credit enhancement and liquidity facilities (ie the conduit is exposed to liquidity risk by using short-term debt instruments to fund medium-term assets). Even though each of the transferors has decision-making rights that affect the value of the assets of the conduit, the sponsor has extensive decision-making authority that gives it the current ability to direct the activities that most significantly affect the conduit’s returns (ie the sponsor established the terms of the conduit, has the right to make decisions about the assets (approving the assets purchased and the transferors of those assets) and the funding of the conduit (for which new investment must be found on a regular basis)). The right to residual returns of the conduit and the provision of credit enhancement and liquidity facilities expose the sponsor to variability of returns from the activities of the conduit that is different from that of the other investors. Accordingly, that exposure indicates that the sponsor is a principal and thus the sponsor concludes that it controls the conduit. The sponsor’s obligation to act in the best interest of all investors does not prevent the sponsor from being a principal.

Relationship with other parties









B73


When assessing control, an investor shall consider the nature of its relationship with other parties and whether those other parties are acting on the investor’s behalf (ie they are ‘de facto agents’). The determination of whether other parties are acting as de facto agents requires judgement, considering not only the nature of the relationship but also how those parties interact with each other and the investor.












B74


Such a relationship need not involve a contractual arrangement. A party is a de facto agent when the investor has, or those that direct the activities of the investor have, the ability to direct that party to act on the investor’s behalf. In these circumstances, the investor shall consider its de facto agent’s decision-making rights and its indirect exposure, or rights, to variable returns through the de facto agent together with its own when assessing control of an investee.












B75


The following are examples of such other parties that, by the nature of their relationship, might act as de facto agents for the investor:






(a)


the investor’s related parties.










(b)


a party that received its interest in the investee as a contribution or loan from the investor.










(c)


a party that has agreed not to sell, transfer or encumber its interests in the investee without the investor’s prior approval (except for situations in which the investor and the other party have the right of prior approval and the rights are based on mutually agreed terms by willing independent parties).










(d)


a party that cannot finance its operations without subordinated financial support from the investor.










(e)


an investee for which the majority of the members of its governing body or for which its key management personnel are the same as those of the investor.










(f)


a party that has a close business relationship with the investor, such as the relationship between a professional service provider and one of its significant clients.









Control of specified assets









B76


An investor shall consider whether it treats a portion of an investee as a deemed separate entity and, if so, whether it controls the deemed separate entity.












B77


An investor shall treat a portion of an investee as a deemed separate entity if and only if the following condition is satisfied:
Specified assets of the investee (and related credit enhancements, if any) are the only source of payment for specified liabilities of, or specified other interests in, the investee. Parties other than those with the specified liability do not have rights or obligations related to the specified assets or to residual cash flows from those assets. In substance, none of the returns from the specified assets can be used by the remaining investee and none of the liabilities of the deemed separate entity are payable from the assets of the remaining investee. Thus, in substance, all the assets, liabilities and equity of that deemed separate entity are ring-fenced from the overall investee. Such a deemed separate entity is often called a ‘silo’.












B78


When the condition in paragraph B77 is satisfied, an investor shall identify the activities that significantly affect the returns of the deemed separate entity and how those activities are directed in order to assess whether it has power over that portion of the investee. When assessing control of the deemed separate entity, the investor shall also consider whether it has exposure or rights to variable returns from its involvement with that deemed separate entity and the ability to use its power over that portion of the investee to affect the amount of the investor’s returns.












B79


If the investor controls the deemed separate entity, the investor shall consolidate that portion of the investee. In that case, other parties exclude that portion of the investee when assessing control of, and in consolidating, the investee.





Continuous assessment









B80


An investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in paragraph 7.












B81


If there is a change in how power over an investee can be exercised, that change must be reflected in how an investor assesses its power over an investee. For example, changes to decision-making rights can mean that the relevant activities are no longer directed through voting rights, but instead other agreements, such as contracts, give another party or parties the current ability to direct the relevant activities.












B82


An event can cause an investor to gain or lose power over an investee without the investor being involved in that event. For example, an investor can gain power over an investee because decision-making rights held by another party or parties that previously prevented the investor from controlling an investee have elapsed.












B83


An investor also considers changes affecting its exposure, or rights, to variable returns from its involvement with an investee. For example, an investor that has power over an investee can lose control of an investee if the investor ceases to be entitled to receive returns or to be exposed to obligations, because the investor would fail to satisfy paragraph 7(b) (eg if a contract to receive performance-related fees is terminated).












B84


An investor shall consider whether its assessment that it acts as an agent or a principal has changed. Changes in the overall relationship between the investor and other parties can mean that an investor no longer acts as an agent, even though it has previously acted as an agent, and vice versa. For example, if changes to the rights of the investor, or of other parties, occur, the investor shall reconsider its status as a principal or an agent.












B85


An investor’s initial assessment of control or its status as a principal or an agent would not change simply because of a change in market conditions (eg a change in the investee’s returns driven by market conditions), unless the change in market conditions changes one or more of the three elements of control listed in paragraph 7 or changes the overall relationship between a principal and an agent.




ACCOUNTING REQUIREMENTS

Consolidation procedures









B86


Consolidated financial statements:






(a)


combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries.










(b)


offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary (IFRS 3 explains how to account for any related goodwill).










(c)


eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full). Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. IAS 12 Income Taxes applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions.









Uniform accounting policies









B87


If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that group member’s financial statements in preparing the consolidated financial statements to ensure conformity with the group’s accounting policies.





Measurement









B88


An entity includes the income and expenses of a subsidiary in the consolidated financial statements from the date it gains control until the date when the entity ceases to control the subsidiary. Income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the consolidated financial statements at the acquisition date. For example, depreciation expense recognised in the consolidated statement of comprehensive income after the acquisition date is based on the fair values of the related depreciable assets recognised in the consolidated financial statements at the acquisition date.





Potential voting rights









B89


When potential voting rights, or other derivatives containing potential voting rights, exist, the proportion of profit or loss and changes in equity allocated to the parent and non-controlling interests in preparing consolidated financial statements is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivatives, unless paragraph B90 applies.












B90


In some circumstances an entity has, in substance, an existing ownership interest as a result of a transaction that currently gives the entity access to the returns associated with an ownership interest. In such circumstances, the proportion allocated to the parent and non-controlling interests in preparing consolidated financial statements is determined by taking into account the eventual exercise of those potential voting rights and other derivatives that currently give the entity access to the returns.












B91


IFRS 9 does not apply to interests in subsidiaries that are consolidated. When instruments containing potential voting rights in substance currently give access to the returns associated with an ownership interest in a subsidiary, the instruments are not subject to the requirements of IFRS 9. In all other cases, instruments containing potential voting rights in a subsidiary are accounted for in accordance with IFRS 9.





Reporting date









B92


The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall have the same reporting date. When the end of the reporting period of the parent is different from that of a subsidiary, the subsidiary prepares, for consolidation purposes, additional financial information as of the same date as the financial statements of the parent to enable the parent to consolidate the financial information of the subsidiary, unless it is impracticable to do so.












B93


If it is impracticable to do so, the parent shall consolidate the financial information of the subsidiary using the most recent financial statements of the subsidiary adjusted for the effects of significant transactions or events that occur between the date of those financial statements and the date of the consolidated financial statements. In any case, the difference between the date of the subsidiary’s financial statements and that of the consolidated financial statements shall be no more than three months, and the length of the reporting periods and any difference between the dates of the financial statements shall be the same from period to period.





Non-controlling interests









B94


An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests. The entity shall also attribute total comprehensive income to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.












B95


If a subsidiary has outstanding cumulative preference shares that are classified as equity and are held by non-controlling interests, the entity shall compute its share of profit or loss after adjusting for the dividends on such shares, whether or not such dividends have been declared.





Changes in the proportion held by non-controlling interests









B96


When the proportion of the equity held by non-controlling interests changes, an entity shall adjust the carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The entity shall recognise directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attribute it to the owners of the parent.





Loss of control









B97


A parent might lose control of a subsidiary in two or more arrangements (transactions). However, sometimes circumstances indicate that the multiple arrangements should be accounted for as a single transaction. In determining whether to account for the arrangements as a single transaction, a parent shall consider all the terms and conditions of the arrangements and their economic effects. One or more of the following indicate that the parent should account for the multiple arrangements as a single transaction:






(a)


They are entered into at the same time or in contemplation of each other.










(b)


They form a single transaction designed to achieve an overall commercial effect.










(c)


The occurrence of one arrangement is dependent on the occurrence of at least one other arrangement.










(d)


One arrangement considered on its own is not economically justified, but it is economically justified when considered together with other arrangements. An example is when a disposal of shares is priced below market and is compensated for by a subsequent disposal priced above market.
















B98


If a parent loses control of a subsidiary, it shall:






(a)


derecognise:






(i)


the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost; and










(ii)


the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them).














(b)


recognise:






(i)


the fair value of the consideration received, if any, from the transaction, event or circumstances that resulted in the loss of control;










(ii)


if the transaction, event or circumstances that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners, that distribution; and










(iii)


any investment retained in the former subsidiary at its fair value at the date when control is lost.














(c)


reclassify to profit or loss, or transfer directly to retained earnings if required by other IFRSs, the amounts recognised in other comprehensive income in relation to the subsidiary on the basis described in paragraph B99.










(d)


recognise any resulting difference as a gain or loss in profit or loss attributable to the parent.
















B99


If a parent loses control of a subsidiary, the parent shall account for all amounts previously recognised in other comprehensive income in relation to that subsidiary on the same basis as would be required if the parent had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the parent shall reclassify the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses control of the subsidiary. If a revaluation surplus previously recognised in other comprehensive income would be transferred directly to retained earnings on the disposal of the asset, the parent shall transfer the revaluation surplus directly to retained earnings when it loses control of the subsidiary.








Appendix C

Effective date and transition


This appendix is an integral part of the IFRS and has the same authority as the other parts of the IFRS.

EFFECTIVE DATE








C1


An entity shall apply this IFRS for annual periods beginning on or after 1 January 2013. Earlier application is permitted. If an entity applies this IFRS earlier, it shall disclose that fact and apply IFRS 11, IFRS 12, IAS 27 Separate Financial Statements and IAS 28 (as amended in 2011) at the same time.




TRANSITION








C2


An entity shall apply this IFRS retrospectively, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except as specified in paragraphs C3–C6.












C3


When applying this IFRS for the first time, an entity is not required to make adjustments to the accounting for its involvement with either:






(a)


entities that were previously consolidated in accordance with IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation—Special Purpose Entities and, in accordance with this IFRS, continue to be consolidated; or










(b)


entities that were previously unconsolidated in accordance with IAS 27 and SIC-12 and, in accordance with this IFRS, continue not to be consolidated.
















C4


When application of this IFRS for the first time results in an investor consolidating an investee that was not consolidated in accordance with IAS 27 and SIC-12 the investor shall:






(a)


if the investee is a business (as defined in IFRS 3), measure the assets, liabilities and non-controlling interests in that previously unconsolidated investee on the date of initial application as if that investee had been consolidated (and thus applied acquisition accounting in accordance with IFRS 3) from the date when the investor obtained control of that investee on the basis of the requirements of this IFRS.










(b)


if the investee is not a business (as defined in IFRS 3), measure the assets, liabilities and non-controlling interests in that previously unconsolidated investee on the date of initial application as if that investee had been consolidated (applying the acquisition method as described in IFRS 3 without recognising any goodwill for the investee) from the date when the investor obtained control of that investee on the basis of the requirements of this IFRS. Any difference between the amount of assets, liabilities and non-controlling interests recognised and the previous carrying amount of the investor’s involvement with the investee shall be recognised as a corresponding adjustment to the opening balance of equity.










(c)


if measuring an investee’s assets, liabilities and non-controlling interest in accordance with (a) or (b) is impracticable (as defined in IAS 8), the investor shall:






(i)


if the investee is a business, apply the requirements of IFRS 3. The deemed acquisition date shall be the beginning of the earliest period for which application of IFRS 3 is practicable, which may be the current period.










(ii)


if the investee is not a business, apply the acquisition method as described in IFRS 3 without recognising any goodwill for the investee as of the deemed acquisition date. The deemed acquisition date shall be the beginning of the earliest period for which the application of this paragraph is practicable, which may be the current period.








The investor shall recognise any difference between the amount of assets, liabilities and non-controlling interests recognised at the deemed acquisition date and any previously recognised amounts from its involvement as an adjustment to equity for that period. In addition, the investor shall provide comparative information and disclosures in accordance with IAS 8.












C5


When application of this IFRS for the first time results in an investor no longer consolidating an investee that was consolidated in accordance with IAS 27 (as amended in 2008) and SIC-12, the investor shall measure its retained interest in the investee on the date of initial application at the amount at which it would have been measured if the requirements of this IFRS had been effective when the investor became involved with, or lost control of, the investee. If measurement of the retained interest is impracticable (as defined in IAS 8), the investor shall apply the requirements of this IFRS for accounting for a loss of control at the beginning of the earliest period for which application of this IFRS is practicable, which may be the current period. The investor shall recognise any difference between the previously recognised amount of the assets, liabilities and non-controlling interest and the carrying amount of the investor’s involvement with the investee as an adjustment to equity for that period. In addition, the investor shall provide comparative information and disclosures in accordance with IAS 8.












C6


Paragraphs 23, 25, B94 and B96–B99 were amendments to IAS 27 made in 2008 that were carried forward into IFRS 10. Except when an entity applies paragraph C3, the entity shall apply the requirements in those paragraphs as follows:






(a)


An entity shall not restate any profit or loss attribution for reporting periods before it applied the amendment in paragraph B94 for the first time.










(b)


The requirements in paragraphs 23 and B96 for accounting for changes in ownership interests in a subsidiary after control is obtained do not apply to changes that occurred before an entity applied these amendments for the first time.










(c)


An entity shall not restate the carrying amount of an investment in a former subsidiary if control was lost before it applied the amendments in paragraphs 25 and B97–B99 for the first time. In addition, an entity shall not recalculate any gain or loss on the loss of control of a subsidiary that occurred before the amendments in paragraphs 25 and B97–B99 were applied for the first time.









References to IFRS 9









C7


If an entity applies this IFRS but does not yet apply IFRS 9, any reference in this IFRS to IFRS 9 shall be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement.




WITHDRAWAL OF OTHER IFRSs








C8


This IFRS supersedes the requirements relating to consolidated financial statements in IAS 27 (as amended in 2008).












C9


This IFRS also supersedes SIC-12 Consolidation—Special Purpose Entities.








Appendix D

Amendments to other IFRSs


This appendix sets out the amendments to other IFRSs that are a consequence of the Board issuing this IFRS. An entity shall apply the amendments for annual periods beginning on or after 1 January 2013. If an entity applied this IFRS for an earlier period, it shall apply these amendments for that earlier period. Amended paragraphs are shown with new text underlined and deleted text struck through.


IFRS 1   
First-time Adoption of International Financial Reporting Standards










D1


Paragraph 39I is added as follows:






39I


IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 31, B7, C1, D1, D14 and D15 and added paragraph D31. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D2


In Appendix B, paragraph B7 is amended as follows:






B7


A first-time adopter shall apply the following requirements of IFRS 10 prospectively from the date of transition to IFRSs:






(a)


the requirement in paragraph B94 that total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance;










(b)


the requirements in paragraphs 23 and B93 for accounting for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control; and










(c)


the requirements in paragraphs B97–B99 for accounting for a loss of control over a subsidiary, and the related requirements of paragraph 8A of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.




However, if a first-time adopter elects to apply IFRS 3 retrospectively to past business combinations, it shall also IFRS 10 in accordance with paragraph C1 of this IFRS.
















D3


In Appendix C, paragraph C1 is amended as follows:






C1


A first-time adopter may elect not to apply IFRS 3 retrospectively to past business combinations (business combinations that occurred before the date of transition to IFRSs). However, if a first-time adopter restates any business combination to comply with IFRS 3, it shall restate all later business combinations and shall also apply IFRS 10 from that same date. For example, if a first-time adopter elects to restate a business combination that occurred on 30 June 20X6, it shall restate all business combinations that occurred on 30 June 20X6 and the date of transition to IFRSs, and it shall also apply IFRS 10 from 30 June 20X6.









IFRS 2   
Share-based Payment










D4


Paragraph 63A is added as follows:






63A


IFRS 10 Consolidated Financial Statements and IFRS 11, issued in May 2011, amended paragraph 5 and Appendix A. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.




In Appendix A the footnote to the definition of ‘share-based payment arrangement’ is amended as follows:






*


A ‘group’ is defined in Appendix A of IFRS 10 Consolidated Financial Statements as ‘a parent and its subsidiaries’ from the perspective of the reporting entity’s ultimate parent.









IFRS 3   
Business Combinations










D5


Paragraph 7 is amended and paragraph 64E is addedas follows:






7


The guidance in IFRS 10 Consolidated Financial Statements shall be used to identify the acquirer—the entity that obtains control of another entity, ie the acquiree. If a business combination has occurred but applying the guidance in IFRS 10 does not clearly indicate which of the combining entities is the acquirer, the factors in paragraphs B14–B18 shall be considered in making that determination.










64E


IFRS 10, issued in May 2011, amended paragraphs 7, B13, B63(e) and Appendix A. An entity shall apply those amendments when it applies IFRS 10.
















D6


[Not applicable to requirements]












D7


In Appendix A the definition of ‘control’ is deleted.












D8


In Appendix B, paragraphs B13 and B63(e) are amended as follows:






B13


The guidance in IFRS 10 Consolidated Financial Statements shall be used to identify the acquirer—the entity that obtains control of the acquiree. If a business combination has occurred but applying the guidance in IFRS 10 does not clearly indicate which of the combining entities is the acquirer, the factors in paragraphs B14–B18 shall be considered in making that determination.










B63


Examples of other IFRSs that provide guidance on subsequently measuring and accounting for assets acquired and liabilities assumed or incurred in a business combination include:






(a)


…










(e)


IFRS 10 provides guidance on accounting for changes in a parent’s ownership interest in a subsidiary after control is obtained.













IFRS 7   
Financial Instruments: Disclosures










D9


Paragraph 3(a) is amended and paragraph 44O is addedas follows:






3


This IFRS shall be applied by all entities to all types of financial instruments, except:






(a)


those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements, or IAS 28 Investments in Associates and Joint Ventures However, in some cases, IAS 27 or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IAS 39; in those cases, …














44O


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph 3. An entity shall apply that amendment when it applies IFRS 10 and IFRS 11.









IFRS 9   
Financial Instruments (as issued in November 2009)









D10


Paragraph 8.1.2 is added as follows:






8.1.2


IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph C8 and deleted the headings above paragraph C18 and paragraphs C18–C23. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D11


In Appendix C, paragraphs C18 and C19 and the headings before paragraphs C18 and C19 are deleted and paragraph C8 is amended as follows:






C83


This IFRS shall be applied by all entities to all types of financial instruments, except:






(a)


those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements, or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27 or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IAS 39 and IFRS 9; in those cases, …













IFRS 9   
Financial Instruments (as issued in October 2010)









D12


Paragraph 3.2.1 is amended and paragraph 7.1.2 is added as follows:






3.2.1


In consolidated financial statements, paragraphs 3.2.2–3.2.9, B3.1.1, B3.1.2 and B3.2.1–B3.2.17 are applied at a consolidated level. Hence, an entity first consolidates all subsidiaries in accordance with IFRS 10 Consolidated Financial Statements and then applies those paragraphs to the resulting group.










7.1.2


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 3.2.1, B3.2.1–B3.2.3, B4.3.12(c), B5.7.15, C11 and C30 and deleted paragraphs C23—C28 and the related headings. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D13


In Appendix B, paragraphs B3.2.1–B3.2.3 and B5.7.15 are amended as follows:
In paragraph B3.2.1, ‘(including any SPE)’ in the first box of the flow chart is deleted.






B3.2.2


The situation described in paragraph 3.2.4(b) (when an entity retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients) occurs, for example, if the entity is a trust, and issues to investors beneficial interests in the underlying financial assets that it owns and provides servicing of those financial assets. In that case, the financial assets qualify for derecognition if the conditions in paragraphs 3.2.5 and 3.2.6 are met.










B3.2.3


In applying paragraph 3.2.5, the entity could be, for example, the originator of the financial asset, or it could be a group that includes a subsidiary that has acquired the financial asset and passes on cash flows to unrelated third party investors.










B5.7.15


The following are examples of asset-specific performance risk:






(a)


…










(b)


a liability issued by a structured entity with the following characteristics. The entity is legally isolated so the assets in the entity are ring-fenced solely for the benefit of its investors, even in the event of bankruptcy. The entity enters into no other transactions and the assets in the entity cannot be hypothecated. Amounts are due to the entity’s investors only if the ring-fenced assets generate cash flows. Thus, …




















D14


In Appendix C, paragraphs C23 and C24 and the heading before paragraph C23 are deleted and paragraphs C11 and C30 are amended as follows:







C11


3


This IFRS shall be applied by all entities to all types of financial instruments, except:






(a)


those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27 or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IFRS 9; in those cases, …








C30



4




This Standard shall be applied by all entities to all types of financial instruments except:








(a)




those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements, or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27, or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IFRS 9; in those cases, …














IAS 1   
Presentation of Financial Statements










D15


Paragraphs 4 and 123 are amended and paragraph 139H is added as follows:






4


This Standard does not apply to the structure and content of condensed interim financial statements prepared in accordance with IAS 34 Interim Financial Reporting. However, paragraphs 15–35 apply to such financial statements. This Standard applies equally to all entities, including those that present consolidated financial statements in accordance with IFRS 10 Consolidated Financial Statements and those that present separate financial statements in accordance with IAS 27 Separate Financial Statements.










123


In the process of applying the entity’s accounting policies, management makes various judgements, apart from those involving estimations, that can significantly affect the amounts it recognises in the financial statements. For example, management makes judgements in determining:






(a)


…










(b)


when substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other entities; and










(c)


whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue.










(d)



[deleted]















139H


IFRS 10 and IFRS 12, issued in May 2011, amended paragraphs 4, 119, 123 and 124. An entity shall apply those amendments when it applies IFRS 10 and IFRS 12.









IAS 7   
Statement of Cash Flows










D16


Paragraph 42B is amended and paragraph 57 is added as follows:






42B


Changes in ownership interests in a subsidiary that do not result in a loss of control, such as the subsequent purchase or sale by a parent of a subsidiary’s equity instruments, are accounted for as equity transactions (see IFRS 10 Consolidated Financial Statements). Accordingly, …










57


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 37, 38 and 42B and deleted paragraph 50(b). An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IAS 21   
The Effects of Changes in Foreign Exchange Rates










D17


[Not applicable to requirements]












D18


Paragraphs 19, 45 and 46 are amended and paragraph 60F is added as follows:






19


This Standard also permits a stand-alone entity preparing financial statements or an entity preparing separate financial statements in accordance with IAS 27 Separate Financial Statements to present its financial statements in any currency (or currencies). If the …










45


The incorporation of the results and financial position of a foreign operation with those of the reporting entity follows normal consolidation procedures, such as the elimination of intragroup balances and intragroup transactions of a subsidiary (see IFRS 10 Consolidated Financial Statements). However, …










46


When the financial statements of a foreign operation are as of a date different from that of the reporting entity, the foreign operation often prepares additional statements as of the same date as the reporting entity’s financial statements. When this is not done, IFRS 10 allows the use of a different date provided that the difference is no greater than three months and adjustments are made for the effects of any significant transactions or other events that occur between the different dates. In such a case, the assets and liabilities of the foreign operation are translated at the exchange rate at the end of the reporting period of the foreign operation. Adjustments are made for significant changes in exchange rates up to the end of the reporting period of the reporting entity in accordance with IFRS 10. The same …










60F


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 3(b), 8, 11, 18, 19, 33, 44–46 and 48A. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IAS 24   
Related Party Disclosures










D19


Paragraph 3 is amended as follows:







3




This Standard requires disclosure of related party transactions, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parentor investors with joint control of, or significant influence over, an investee presented in accordance with IFRS 10 Consolidated Financial Statements or IAS 27 Separate Financial Statements. This Standard also applies to individual financial statements.





In paragraph 9 the definitions of ‘control’, ‘joint control’ and ‘significant influence’ are deleted and a sentence is added as follows:

The terms ‘control’, ‘joint control’ and ‘significant influence’ are defined in IFRS 10, IFRS 11 Joint Arrangements and IAS 28 Investments in Associates and Joint Ventures and are used in this Standard with the meanings specified in those IFRSs.

Paragraph 28A is added as follows:






28A


IFRS 10, IFRS 11 Joint Arrangements and IFRS 12, issued in May 2011, amended paragraphs 3, 9, 11(b), 15, 19(b) and (e) and 25. An entity shall apply those amendments when it applies IFRS 10, IFRS 11 and IFRS 12.









IAS 27   
Consolidated and Separate Financial Statements










D20


In IAS 27 Consolidated and Separate Financial Statements, the requirements relating to consolidated financial statements are deleted and moved to IFRS 10 where appropriate. The accounting and disclosure requirements for separate financial statements remain in IAS 27; the title is amended to Separate Financial Statements, the remaining paragraphs are renumbered sequentially, the scope is adjusted and other editorial changes are made. The accounting and disclosure requirements remaining in IAS 27 (as amended in 2011) are also updated to reflect the guidance in IFRS 10, IFRS 11, IFRS 12 and IAS 28 (as amended in 2011). Details of the destination of paragraphs in IAS 27 (as amended in 2008) are contained in the table of concordance attached to IAS 27 (as amended in 2011).





IAS 32   
Financial Instruments: Presentation










D21


Paragraph 4(a) is amended and paragraph 97I is added as follows:







4




This Standard shall be applied by all entities to all types of financial instruments except:








(a)




those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements, or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27, or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IAS 39…















97I


IFRS 10 and IFRS 11, issued in May 2011, amended paragraphs 4(a) and AG29. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D22


In the Appendix, paragraph AG29 is amended as follows:






AG29


In consolidated financial statements, an entity presents non-controlling interests—ie the interests of other parties in the equity and income of its subsidiaries—in accordance with IAS 1 and IFRS 10. When …









IAS 33   
Earnings per Share










D23


Paragraph 4 is amended and paragraph 74B is added as follows:







4




When an entity presents both consolidated financial statements and separate financial statements prepared in accordance with IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements, respectively, the disclosures required by this Standard need be presented only on the basis of the consolidated information. An …











74B


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 4, 40 and A11. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IAS 36   
Impairment of Assets










D24


Paragraph 4(a) is amended and paragraph 140H is added as follows:






4


This Standard applies to financial assets classified as:






(a)


subsidiaries, as defined in IFRS 10 Consolidated Financial Statements;










(b)


…














140H


IFRS 10 and IFRS 11, issued in May 2011, amended paragraph 4, the heading above paragraph 12(h) and paragraph 12(h). An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D25


[Not applicable to requirements]





IAS 38   
Intangible Assets










D26


Paragraph 3(e) is amended and paragraph 130F is added as follows:






3


If another Standard prescribes the accounting for a specific type of intangible asset, an entity applies that Standard instead of this Standard. For example, this Standard does not apply to:






(a)


…










(e)


financial assets as defined in IAS 32. The recognition and measurement of some financial assets are covered by IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures.










(f)


…














130F


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph 3(e). An entity shall apply that amendment when it applies IFRS 10 and IFRS 11.









IAS 39   
Financial Instruments: Recognition and Measurement (as amended at October 2009)









D27


Paragraphs 2(a) and 15 are amended and paragraph 103P is added as follows:






2



This Standard shall be applied by all entities to all types of financial instruments except:







(a)



those interests in subsidiaries, associates and joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements, or IAS 28 Investments in Associates and Joint Ventures. However, entities shall apply this Standard to an interest in a subsidiary, associate or joint venture that according to IAS 27, or IAS 28 or IAS 31 is accounted for under this Standard. …















15


In consolidated financial statements, paragraphs 16–23 and Appendix A paragraphs AG34–AG52 are applied at a consolidated level. Hence, an entity first consolidates all subsidiaries in accordance with IFRS 10 and then applies paragraphs 16–23 and Appendix A paragraphs AG34–AG52 to the resulting group.










103P


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 2(a), 15, AG3, AG36–AG38 and AG41(a). An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D28


In Appendix A paragraphs AG36–AG38 are amended as follows:
In paragraph AG36, ‘(including any SPE)’ in the first box of the flow chart is deleted.






AG37


The situation described in paragraph 18(b) (when an entity retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients) occurs, for example, if the entity is a trust, and issues to investors beneficial interests in the underlying financial assets that it owns and provides servicing of those financial assets. In that case, the financial assets qualify for derecognition if the conditions in paragraphs 19 and 20 are met.










AG38


In applying paragraph 19, the entity could be, for example, the originator of the financial asset, or it could be a group that includes a subsidiary that has acquired the financial asset and passes on cash flows to unrelated third party investors.









IFRIC 5   
Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds










D29


In the ‘references’, the entries for IAS 27 and IAS 31 are deleted, the entry for IAS 28 is amended to ‘IAS 28 Investments in Associates and Joint Ventures’ and entries for IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements are added.
Paragraph 8 is amended and paragraph 14B is added as follows:






8


The contributor shall determine whether it has control or joint control of, or significant influence over the fund by reference to IFRS 10, IFRS 11 and IAS 28. If it does, the contributor shall account for its interest in the fund in accordance with those Standards.










14B


IFRS 10 and IFRS 11, issued in May 2011, amended paragraphs 8 and 9. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IFRIC 17   
Distributions of Non-cash Assets to Owners










D30


In the ‘references’, an entity for ‘IFRS 10 Consolidated Financial Statements’ is added.
Paragraph 7 is amended and paragraph 19 is added as follows:






7


In accordance with paragraph 5, this Interpretation does not apply when an entity distributes some of its ownership interests in a subsidiary but retains control of the subsidiary. The entity making a distribution that results in the entity recognising a non-controlling interest in its subsidiary accounts for the distribution in accordance with IFRS 10.










19


IFRS 10, issued in May 2011, amended paragraph 7. An entity shall apply that amendment when it applies IFRS 10.











INTERNATIONAL FINANCIAL REPORTING STANDARD 11



Joint Arrangements


OBJECTIVE









1




The objective of this IFRS is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (ie joint arrangements).






Meeting the objective









2


To meet the objective in paragraph 1, this IFRS defines joint control and requires an entity that is a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and to account for those rights and obligations in accordance with that type of joint arrangement.




SCOPE









3




This IFRS shall be applied by all entities that are a party to a joint arrangement.





JOINT ARRANGEMENTS









4




A joint arrangement is an arrangement of which two or more parties have joint control.














5




A joint arrangement has the following characteristics:







(a)



The parties are bound by a contractual arrangement (see paragraphs B2–B4).











(b)



The contractual arrangement gives two or more of those parties joint control of the arrangement (see paragraphs 7–13).


















6




A joint arrangement is either a joint operation or a joint venture.






Joint control










7




Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.













8


An entity that is a party to an arrangement shall assess whether the contractual arrangement gives all the parties, or a group of the parties, control of the arrangement collectively. All the parties, or a group of the parties, control the arrangement collectively when they must act together to direct the activities that significantly affect the returns of the arrangement (ie the relevant activities).












9


Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively.












10


In a joint arrangement, no single party controls the arrangement on its own. A party with joint control of an arrangement can prevent any of the other parties, or a group of the parties, from controlling the arrangement.












11


An arrangement can be a joint arrangement even though not all of its parties have joint control of the arrangement. This IFRS distinguishes between parties that have joint control of a joint arrangement (joint operators or joint venturers) and parties that participate in, but do not have joint control of, a joint arrangement.












12


An entity will need to apply judgement when assessing whether all the parties, or a group of the parties, have joint control of an arrangement. An entity shall make this assessment by considering all facts and circumstances (see paragraphs B5–B11).












13


If facts and circumstances change, an entity shall reassess whether it still has joint control of the arrangement.





Types of joint arrangement










14




An entity shall determine the type of joint arrangement in which it is involved. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement.














15




A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.














16




A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.













17


An entity applies judgement when assessing whether a joint arrangement is a joint operation or a joint venture. An entity shall determine the type of joint arrangement in which it is involved by considering its rights and obligations arising from the arrangement. An entity assesses its rights and obligations by considering the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances (see paragraphs B12–B33).












18


Sometimes the parties are bound by a framework agreement that sets up the general contractual terms for undertaking one or more activities. The framework agreement might set out that the parties establish different joint arrangements to deal with specific activities that form part of the agreement. Even though those joint arrangements are related to the same framework agreement, their type might be different if the parties’ rights and obligations differ when undertaking the different activities dealt with in the framework agreement. Consequently, joint operations and joint ventures can coexist when the parties undertake different activities that form part of the same framework agreement.












19


If facts and circumstances change, an entity shall reassess whether the type of joint arrangement in which it is involved has changed.




FINANCIAL STATEMENTS OF PARTIES TO A JOINT ARRANGEMENT

Joint operations










20




A joint operator shall recognise in relation to its interest in a joint operation:







(a)



its assets, including its share of any assets held jointly;











(b)



its liabilities, including its share of any liabilities incurred jointly;











(c)



its revenue from the sale of its share of the output arising from the joint operation;











(d)



its share of the revenue from the sale of the output by the joint operation; and











(e)



its expenses, including its share of any expenses incurred jointly.

















21


A joint operator shall account for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.












22


The accounting for transactions such as the sale, contribution or purchase of assets between an entity and a joint operation in which it is a joint operator is specified in paragraphs B34–B37.












23


A party that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with paragraphs 20–22 if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation. If a party that participates in, but does not have joint control of, a joint operation does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, it shall account for its interest in the joint operation in accordance with the IFRSs applicable to that interest.





Joint ventures










24




A joint venturer shall recognise its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures unless the entity is exempted from applying the equity method as specified in that standard.













25


A party that participates in, but does not have joint control of, a joint venture shall account for its interest in the arrangement in accordance with IFRS 9 Financial Instruments, unless it has significant influence over the joint venture, in which case it shall account for it in accordance with IAS 28 (as amended in 2011).




SEPARATE FINANCIAL STATEMENTS









26




In its separate financial statements, a joint operator or joint venturer shall account for its interest in:







(a)



a joint operation in accordance with paragraphs 20–22;











(b)



a joint venture in accordance with paragraph 10 of IAS 27 Separate Financial Statements.


















27




In its separate financial statements, a party that participates in, but does not have joint control of, a joint arrangement shall account for its interest in:







(a)



a joint operation in accordance with paragraph 23;











(b)



a joint venture in accordance with IFRS 9, unless the entity has significant influence over the joint venture, in which case it shall apply paragraph 10 of IAS 27 (as amended in 2011).











Appendix A

Defined terms


This appendix is an integral part of the IFRS.







joint arrangement


An arrangement of which two or more parties have joint control.




joint control


The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.




joint operation


A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.




joint operator


A party to a joint operation that has joint control of that joint operation.




joint venture


A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.




joint venturer


A party to a joint venture that has joint control of that joint venture.




party to a joint arrangement


An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement.




separate vehicle


A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality.




The following terms are defined in IAS 27 (as amended in 2011), IAS 28 (as amended in 2011) or IFRS 10 Consolidated Financial Statements and are used in this IFRS with the meanings specified in those IFRSs:






—


control of an investee










—


equity method










—


power










—


protective rights










—


relevant activities










—


separate financial statements










—


significant influence.








Appendix B

Application guidance


This appendix is an integral part of the IFRS. It describes the application of paragraphs 1–27 and has the same authority as the other parts of the IFRS.









B1


The examples in this appendix portray hypothetical situations. Although some aspects of the examples may be present in actual fact patterns, all relevant facts and circumstances of a particular fact pattern would need to be evaluated when applying IFRS 11.




JOINT ARRANGEMENTS

Contractual arrangement (paragraph 5)









B2


Contractual arrangements can be evidenced in several ways. An enforceable contractual arrangement is often, but not always, in writing, usually in the form of a contract or documented discussions between the parties. Statutory mechanisms can also create enforceable arrangements, either on their own or in conjunction with contracts between the parties.












B3


When joint arrangements are structured through a separate vehicle (see paragraphs B19–B33), the contractual arrangement, or some aspects of the contractual arrangement, will in some cases be incorporated in the articles, charter or by-laws of the separate vehicle.












B4


The contractual arrangement sets out the terms upon which the parties participate in the activity that is the subject of the arrangement. The contractual arrangement generally deals with such matters as:






(a)


the purpose, activity and duration of the joint arrangement.










(b)


how the members of the board of directors, or equivalent governing body, of the joint arrangement, are appointed.










(c)


the decision-making process: the matters requiring decisions from the parties, the voting rights of the parties and the required level of support for those matters. The decision-making process reflected in the contractual arrangement establishes joint control of the arrangement (see paragraphs B5–B11).










(d)


the capital or other contributions required of the parties.










(e)


how the parties share assets, liabilities, revenues, expenses or profit or loss relating to the joint arrangement.









Joint control (paragraphs 7–13)









B5


In assessing whether an entity has joint control of an arrangement, an entity shall assess first whether all the parties, or a group of the parties, control the arrangement. IFRS 10 defines control and shall be used to determine whether all the parties, or a group of the parties, are exposed, or have rights, to variable returns from their involvement with the arrangement and have the ability to affect those returns through their power over the arrangement. When all the parties, or a group of the parties, considered collectively, are able to direct the activities that significantly affect the returns of the arrangement (ie the relevant activities), the parties control the arrangement collectively.












B6


After concluding that all the parties, or a group of the parties, control the arrangement collectively, an entity shall assess whether it has joint control of the arrangement. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement. Assessing whether the arrangement is jointly controlled by all of its parties or by a group of the parties, or controlled by one of its parties alone, can require judgement.












B7


Sometimes the decision-making process that is agreed upon by the parties in their contractual arrangement implicitly leads to joint control. For example, assume two parties establish an arrangement in which each has 50 per cent of the voting rights and the contractual arrangement between them specifies that at least 51 per cent of the voting rights are required to make decisions about the relevant activities. In this case, the parties have implicitly agreed that they have joint control of the arrangement because decisions about the relevant activities cannot be made without both parties agreeing.












B8


In other circumstances, the contractual arrangement requires a minimum proportion of the voting rights to make decisions about the relevant activities. When that minimum required proportion of the voting rights can be achieved by more than one combination of the parties agreeing together, that arrangement is not a joint arrangement unless the contractual arrangement specifies which parties (or combination of parties) are required to agree unanimously to decisions about the relevant activities of the arrangement.





Application examples


Example 1

Assume that three parties establish an arrangement: A has 50 per cent of the voting rights in the arrangement, B has 30 per cent and C has 20 per cent. The contractual arrangement between A, B and C specifies that at least 75 per cent of the voting rights are required to make decisions about the relevant activities of the arrangement. Even though A can block any decision, it does not control the arrangement because it needs the agreement of B. The terms of their contractual arrangement requiring at least 75 per cent of the voting rights to make decisions about the relevant activities imply that A and B have joint control of the arrangement because decisions about the relevant activities of the arrangement cannot be made without both A and B agreeing.

Example 2

Assume an arrangement has three parties: A has 50 per cent of the voting rights in the arrangement and B and C each have 25 per cent. The contractual arrangement between A, B and C specifies that at least 75 per cent of the voting rights are required to make decisions about the relevant activities of the arrangement. Even though A can block any decision, it does not control the arrangement because it needs the agreement of either B or C. In this example, A, B and C collectively control the arrangement. However, there is more than one combination of parties that can agree to reach 75 per cent of the voting rights (ie either A and B or A and C). In such a situation, to be a joint arrangement the contractual arrangement between the parties would need to specify which combination of the parties is required to agree unanimously to decisions about the relevant activities of the arrangement.

Example 3

Assume an arrangement in which A and B each have 35 per cent of the voting rights in the arrangement with the remaining 30 per cent being widely dispersed. Decisions about the relevant activities require approval by a majority of the voting rights. A and B have joint control of the arrangement only if the contractual arrangement specifies that decisions about the relevant activities of the arrangement require both A and B agreeing.








B9


The requirement for unanimous consent means that any party with joint control of the arrangement can prevent any of the other parties, or a group of the parties, from making unilateral decisions (about the relevant activities) without its consent. If the requirement for unanimous consent relates only to decisions that give a party protective rights and not to decisions about the relevant activities of an arrangement, that party is not a party with joint control of the arrangement.












B10


A contractual arrangement might include clauses on the resolution of disputes, such as arbitration. These provisions may allow for decisions to be made in the absence of unanimous consent among the parties that have joint control. The existence of such provisions does not prevent the arrangement from being jointly controlled and, consequently, from being a joint arrangement.





Assessing joint control




Does the contractual arrangement give all the parties, or a group of the parties, control of the arrangement collectively
Do decisions about the relevant activities require the unanimous consent of all the parties, or of a group of the parties, that collectively control the arrangement?
The arrangement is jointly controlled: the arrangement is a joint arrangement
No
No
Yes
Yes
Outside the scope of IFRS 11
Outside the scope of IFRS 11








B11


When an arrangement is outside the scope of IFRS 11, an entity accounts for its interest in the arrangement in accordance with relevant IFRSs, such as IFRS 10, IAS 28 (as amended in 2011) or IFRS 9.




TYPES OF JOINT ARRANGEMENT (PARAGRAPHS 14–19)








B12


Joint arrangements are established for a variety of purposes (eg as a way for parties to share costs and risks, or as a way to provide the parties with access to new technology or new markets), and can be established using different structures and legal forms.












B13


Some arrangements do not require the activity that is the subject of the arrangement to be undertaken in a separate vehicle. However, other arrangements involve the establishment of a separate vehicle.












B14


The classification of joint arrangements required by this IFRS depends upon the parties’ rights and obligations arising from the arrangement in the normal course of business. This IFRS classifies joint arrangements as either joint operations or joint ventures. When an entity has rights to the assets, and obligations for the liabilities, relating to the arrangement, the arrangement is a joint operation. When an entity has rights to the net assets of the arrangement, the arrangement is a joint venture. Paragraphs B16–B33 set out the assessment an entity carries out to determine whether it has an interest in a joint operation or an interest in a joint venture.





Classification of a joint arrangement









B15


As stated in paragraph B14, the classification of joint arrangements requires the parties to assess their rights and obligations arising from the arrangement. When making that assessment, an entity shall consider the following:






(a)


the structure of the joint arrangement (see paragraphs B16–B21).










(b)


when the joint arrangement is structured through a separate vehicle:






(i)


the legal form of the separate vehicle (see paragraphs B22–B24);










(ii)


the terms of the contractual arrangement (see paragraphs B25–B28); and










(iii)


when relevant, other facts and circumstances (see paragraphs B29–B33).













Structure of the joint arrangement


Joint arrangements not structured through a separate vehicle









B16


A joint arrangement that is not structured through a separate vehicle is a joint operation. In such cases, the contractual arrangement establishes the parties’ rights to the assets, and obligations for the liabilities, relating to the arrangement, and the parties’ rights to the corresponding revenues and obligations for the corresponding expenses.












B17


The contractual arrangement often describes the nature of the activities that are the subject of the arrangement and how the parties intend to undertake those activities together. For example, the parties to a joint arrangement could agree to manufacture a product together, with each party being responsible for a specific task and each using its own assets and incurring its own liabilities. The contractual arrangement could also specify how the revenues and expenses that are common to the parties are to be shared among them. In such a case, each joint operator recognises in its financial statements the assets and liabilities used for the specific task, and recognises its share of the revenues and expenses in accordance with the contractual arrangement.












B18


In other cases, the parties to a joint arrangement might agree, for example, to share and operate an asset together. In such a case, the contractual arrangement establishes the parties’ rights to the asset that is operated jointly, and how output or revenue from the asset and operating costs are shared among the parties. Each joint operator accounts for its share of the joint asset and its agreed share of any liabilities, and recognises its share of the output, revenues and expenses in accordance with the contractual arrangement.





Joint arrangements structured through a separate vehicle









B19


A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle can be either a joint venture or a joint operation.












B20


Whether a party is a joint operator or a joint venturer depends on the party’s rights to the assets, and obligations for the liabilities, relating to the arrangement that are held in the separate vehicle.












B21


As stated in paragraph B15, when the parties have structured a joint arrangement in a separate vehicle, the parties need to assess whether the legal form of the separate vehicle, the terms of the contractual arrangement and, when relevant, any other facts and circumstances give them:






(a)


rights to the assets, and obligations for the liabilities, relating to the arrangement (ie the arrangement is a joint operation); or










(b)


rights to the net assets of the arrangement (ie the arrangement is a joint venture).









Classification of a joint arrangement: assessment of the parties’ rights and obligations arising form the arrangement




Structure of the joint arrangement
An entity shall consider:
(i) The legal form of the separate vehicle;
(ii) The terms of the contractual arrangement; and
(iii) When relevant, other facts and circumstances.
Joint operation
Structured through a separate vehicle
Joint venture
Not structured through a separate vehicle

The legal form of the separate vehicle









B22


The legal form of the separate vehicle is relevant when assessing the type of joint arrangement. The legal form assists in the initial assessment of the parties’ rights to the assets and obligations for the liabilities held in the separate vehicle, such as whether the parties have interests in the assets held in the separate vehicle and whether they are liable for the liabilities held in the separate vehicle.












B23


For example, the parties might conduct the joint arrangement through a separate vehicle, whose legal form causes the separate vehicle to be considered in its own right (ie the assets and liabilities held in the separate vehicle are the assets and liabilities of the separate vehicle and not the assets and liabilities of the parties). In such a case, the assessment of the rights and obligations conferred upon the parties by the legal form of the separate vehicle indicates that the arrangement is a joint venture. However, the terms agreed by the parties in their contractual arrangement (see paragraphs B25–B28) and, when relevant, other facts and circumstances (see paragraphs B29–B33) can override the assessment of the rights and obligations conferred upon the parties by the legal form of the separate vehicle.












B24


The assessment of the rights and obligations conferred upon the parties by the legal form of the separate vehicle is sufficient to conclude that the arrangement is a joint operation only if the parties conduct the joint arrangement in a separate vehicle whose legal form does not confer separation between the parties and the separate vehicle (ie the assets and liabilities held in the separate vehicle are the parties’ assets and liabilities).





Assessing the terms of the contractual arrangement









B25


In many cases, the rights and obligations agreed to by the parties in their contractual arrangements are consistent, or do not conflict, with the rights and obligations conferred on the parties by the legal form of the separate vehicle in which the arrangement has been structured.












B26


In other cases, the parties use the contractual arrangement to reverse or modify the rights and obligations conferred by the legal form of the separate vehicle in which the arrangement has been structured.





Application example


Example 4

Assume that two parties structure a joint arrangement in an incorporated entity. Each party has a 50 per cent ownership interest in the incorporated entity. The incorporation enables the separation of the entity from its owners and as a consequence the assets and liabilities held in the entity are the assets and liabilities of the incorporated entity. In such a case, the assessment of the rights and obligations conferred upon the parties by the legal form of the separate vehicle indicates that the parties have rights to the net assets of the arrangement.
However, the parties modify the features of the corporation through their contractual arrangement so that each has an interest in the assets of the incorporated entity and each is liable for the liabilities of the incorporated entity in a specified proportion. Such contractual modifications to the features of a corporation can cause an arrangement to be a joint operation.








B27


The following table compares common terms in contractual arrangements of parties to a joint operation and common terms in contractual arrangements of parties to a joint venture. The examples of the contractual terms provided in the following table are not exhaustive.

Assessing the terms of the contractual arrangement








 



Joint operation




Joint venture






The terms of the contractual arrangement



The contractual arrangement provides the parties to the joint arrangement with rights to the assets, and obligations for the liabilities, relating to the arrangement.


The contractual arrangement provides the parties to the joint arrangement with rights to the net assets of the arrangement (ie it is the separate vehicle, not the parties, that has rights to the assets, and obligations for the liabilities, relating to the arrangement).





Rights to assets



The contractual arrangement establishes that the parties to the joint arrangement share all interests (eg rights, title or ownership) in the assets relating to the arrangement in a specified proportion (eg in proportion to the parties’ ownership interest in the arrangement or in proportion to the activity carried out through the arrangement that is directly attributed to them).


The contractual arrangement establishes that the assets brought into the arrangement or subsequently acquired by the joint arrangement are the arrangement’s assets. The parties have no interests (ie no rights, title or ownership) in the assets of the arrangement.





Obligations for liabilities



The contractual arrangement establishes that the parties to the joint arrangement share all liabilities, obligations, costs and expenses in a specified proportion (eg in proportion to the parties’ ownership interest in the arrangement or in proportion to the activity carried out through the arrangement that is directly attributed to them).


The contractual arrangement establishes that the joint arrangement is liable for the debts and obligations of the arrangement.




The contractual arrangement establishes that the parties to the joint arrangement are liable to the arrangement only to the extent of their respective investments in the arrangement or to their respective obligations to contribute any unpaid or additional capital to the arrangement, or both.




The contractual arrangement establishes that the parties to the joint arrangement are liable for claims raised by third parties.


The contractual arrangement states that creditors of the joint arrangement do not have rights of recourse against any party with respect to debts or obligations of the arrangement.





Revenues, expenses, profit or loss



The contractual arrangement establishes the allocation of revenues and expenses on the basis of the relative performance of each party to the joint arrangement. For example, the contractual arrangement might establish that revenues and expenses are allocated on the basis of the capacity that each party uses in a plant operated jointly, which could differ from their ownership interest in the joint arrangement. In other instances, the parties might have agreed to share the profit or loss relating to the arrangement on the basis of a specified proportion such as the parties’ ownership interest in the arrangement. This would not prevent the arrangement from being a joint operation if the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement.


The contractual arrangement establishes each party’s share in the profit or loss relating to the activities of the arrangement.





Guarantees



The parties to joint arrangements are often required to provide guarantees to third parties that, for example, receive a service from, or provide financing to, the joint arrangement. The provision of such guarantees, or the commitment by the parties to provide them, does not, by itself, determine that the joint arrangement is a joint operation. The feature that determines whether the joint arrangement is a joint operation or a joint venture is whether the parties have obligations for the liabilities relating to the arrangement (for some of which the parties might or might not have provided a guarantee).
















B28


When the contractual arrangement specifies that the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement, they are parties to a joint operation and do not need to consider other facts and circumstances (paragraphs B29–B33) for the purposes of classifying the joint arrangement.





Assessing other facts and circumstances









B29


When the terms of the contractual arrangement do not specify that the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement, the parties shall consider other facts and circumstances to assess whether the arrangement is a joint operation or a joint venture.












B30


A joint arrangement might be structured in a separate vehicle whose legal form confers separation between the parties and the separate vehicle. The contractual terms agreed among the parties might not specify the parties’ rights to the assets and obligations for the liabilities, yet consideration of other facts and circumstances can lead to such an arrangement being classified as a joint operation. This will be the case when other facts and circumstances give the parties rights to the assets, and obligations for the liabilities, relating to the arrangement.












B31


When the activities of an arrangement are primarily designed for the provision of output to the parties, this indicates that the parties have rights to substantially all the economic benefits of the assets of the arrangement. The parties to such arrangements often ensure their access to the outputs provided by the arrangement by preventing the arrangement from selling output to third parties.












B32


The effect of an arrangement with such a design and purpose is that the liabilities incurred by the arrangement are, in substance, satisfied by the cash flows received from the parties through their purchases of the output. When the parties are substantially the only source of cash flows contributing to the continuity of the operations of the arrangement, this indicates that the parties have an obligation for the liabilities relating to the arrangement.





Application example


Example 5

Assume that two parties structure a joint arrangement in an incorporated entity (entity C) in which each party has a 50 per cent ownership interest. The purpose of the arrangement is to manufacture materials required by the parties for their own, individual manufacturing processes. The arrangement ensures that the parties operate the facility that produces the materials to the quantity and quality specifications of the parties.
The legal form of entity C (an incorporated entity) through which the activities are conducted initially indicates that the assets and liabilities held in entity C are the assets and liabilities of entity C. The contractual arrangement between the parties does not specify that the parties have rights to the assets or obligations for the liabilities of entity C. Accordingly, the legal form of entity C and the terms of the contractual arrangement indicate that the arrangement is a joint venture.
However, the parties also consider the following aspects of the arrangement:






—


The parties agreed to purchase all the output produced by entity C in a ratio of 50:50. Entity C cannot sell any of the output to third parties, unless this is approved by the two parties to the arrangement. Because the purpose of the arrangement is to provide the parties with output they require, such sales to third parties are expected to be uncommon and not material.










—


The price of the output sold to the parties is set by both parties at a level that is designed to cover the costs of production and administrative expenses incurred by entity C. On the basis of this operating model, the arrangement is intended to operate at a break-even level.




From the fact pattern above, the following facts and circumstances are relevant:






—


The obligation of the parties to purchase all the output produced by entity C reflects the exclusive dependence of entity C upon the parties for the generation of cash flows and, thus, the parties have an obligation to fund the settlement of the liabilities of entity C.










—


The fact that the parties have rights to all the output produced by entity C means that the parties are consuming, and therefore have rights to, all the economic benefits of the assets of entity C.




These facts and circumstances indicate that the arrangement is a joint operation. The conclusion about the classification of the joint arrangement in these circumstances would not change if, instead of the parties using their share of the output themselves in a subsequent manufacturing process, the parties sold their share of the output to third parties.
If the parties changed the terms of the contractual arrangement so that the arrangement was able to sell output to third parties, this would result in entity C assuming demand, inventory and credit risks. In that scenario, such a change in the facts and circumstances would require reassessment of the classification of the joint arrangement. Such facts and circumstances would indicate that the arrangement is a joint venture.








B33


The following flow chart reflects the assessment an entity follows to classify an arrangement when the joint arrangement is structured through a separate vehicle:

Classification of a joint arrangement structured through a separate vehicle




Legal form of the separate vehicle
Terms of the contractual arrangement
Other facts and circumstances
Does the legal form of the separate vehicle give the parties rights to the assets, and obligations for the liabilities, relating to the arrangement?
Do the terms of the contractual arrangement specify that the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement?
Have the parties designed arrangement so that:
(a) its activities primarily aim to provide the parties with an output (ie the parties have rights to substantially all of the economic benefits of the assets held in the separate vehicle) and
(b) it depends on the parties on a continuous basis for setting the liabilities relating to the activity conducted through the arrangement?
Joint venture
Joint operation




FINANCIAL STATEMENTS OF PARTIES TO A JOINT ARRANGEMENT (PARAGRAPH 22)

Accounting for sales or contributions of assets to a joint operation









B34


When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint operation and, as such, the joint operator shall recognise gains and losses resulting from such a transaction only to the extent of the other parties’ interests in the joint operation.












B35


When such transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed to the joint operation, or of an impairment loss of those assets, those losses shall be recognised fully by the joint operator.





Accounting for purchases of assets from a joint operation









B36


When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it shall not recognise its share of the gains and losses until it resells those assets to a third party.












B37


When such transactions provide evidence of a reduction in the net realisable value of the assets to be purchased or of an impairment loss of those assets, a joint operator shall recognise its share of those losses.








Appendix C

Effective date, transition and withdrawal of other IFRSs


This appendix is an integral part of the IFRS and has the same authority as the other parts of the IFRS.

EFFECTIVE DATE








C1


An entity shall apply this IFRS for annual periods beginning on or after 1 January 2013. Earlier application is permitted. If an entity applies this IFRS earlier, it shall disclose that fact and apply IFRS 10, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 (as amended in 2011) and IAS 28 (as amended in 2011) at the same time.




TRANSITION

Joint ventures—transition from proportionate consolidation to the equity method









C2


When changing from proportionate consolidation to the equity method, an entity shall recognise its investment in the joint venture as at the beginning of the earliest period presented. That initial investment shall be measured as the aggregate of the carrying amounts of the assets and liabilities that the entity had previously proportionately consolidated, including any goodwill arising from acquisition. If the goodwill previously belonged to a larger cash-generating unit, or to a group of cash-generating units, the entity shall allocate goodwill to the joint venture on the basis of the relative carrying amounts of the joint venture and the cash-generating unit or group of cash-generating units to which it belonged.












C3


The opening balance of the investment determined in accordance with paragraph C2 is regarded as the deemed cost of the investment at initial recognition. An entity shall apply paragraphs 40–43 of IAS 28 (as amended in 2011) to the opening balance of the investment to assess whether the investment is impaired and shall recognise any impairment loss as an adjustment to retained earnings at the beginning of the earliest period presented. The initial recognition exception in paragraphs 15 and 24 of IAS 12 Income Taxes does not apply when the entity recognises an investment in a joint venture resulting from applying the transition requirements for joint ventures that had previously been proportionately consolidated.












C4


If aggregating all previously proportionately consolidated assets and liabilities results in negative net assets, an entity shall assess whether it has legal or constructive obligations in relation to the negative net assets and, if so, the entity shall recognise the corresponding liability. If the entity concludes that it does not have legal or constructive obligations in relation to the negative net assets, it shall not recognise the corresponding liability but it shall adjust retained earnings at the beginning of the earliest period presented. The entity shall disclose this fact, along with its cumulative unrecognised share of losses of its joint ventures as at the beginning of the earliest period presented and at the date at which this IFRS is first applied.












C5


An entity shall disclose a breakdown of the assets and liabilities that have been aggregated into the single line investment balance as at the beginning of the earliest period presented. That disclosure shall be prepared in an aggregated manner for all joint ventures for which an entity applies the transition requirements referred to in paragraphs C2–C6.












C6


After initial recognition, an entity shall account for its investment in the joint venture using the equity method in accordance with IAS 28 (as amended in 2011).





Joint operations—transition from the equity method to accounting for assets and liabilities









C7


When changing from the equity method to accounting for assets and liabilities in respect of its interest in a joint operation, an entity shall, at the beginning of the earliest period presented, derecognise the investment that was previously accounted for using the equity method and any other items that formed part of the entity’s net investment in the arrangement in accordance with paragraph 38 of IAS 28 (as amended in 2011) and recognise its share of each of the assets and the liabilities in respect of its interest in the joint operation, including any goodwill that might have formed part of the carrying amount of the investment.












C8


An entity shall determine its interest in the assets and liabilities relating to the joint operation on the basis of its rights and obligations in a specified proportion in accordance with the contractual arrangement. An entity measures the initial carrying amounts of the assets and liabilities by disaggregating them from the carrying amount of the investment at the beginning of the earliest period presented on the basis of the information used by the entity in applying the equity method.












C9


Any difference arising from the investment previously accounted for using the equity method together with any other items that formed part of the entity’s net investment in the arrangement in accordance with paragraph 38 of IAS 28 (as amended in 2011), and the net amount of the assets and liabilities, including any goodwill, recognised shall be:






(a)


offset against any goodwill relating to the investment with any remaining difference adjusted against retained earnings at the beginning of the earliest period presented, if the net amount of the assets and liabilities, including any goodwill, recognised is higher than the investment (and any other items that formed part of the entity’s net investment) derecognised.










(b)


adjusted against retained earnings at the beginning of the earliest period presented, if the net amount of the assets and liabilities, including any goodwill, recognised is lower than the investment (and any other items that formed part of the entity’s net investment) derecognised.
















C10


An entity changing from the equity method to accounting for assets and liabilities shall provide a reconciliation between the investment derecognised, and the assets and liabilities recognised, together with any remaining difference adjusted against retained earnings, at the beginning of the earliest period presented.












C11


The initial recognition exception in paragraphs 15 and 24 of IAS 12 does not apply when the entity recognises assets and liabilities relating to its interest in a joint operation.





Transition provisions in an entity’s separate financial statements









C12


An entity that, in accordance with paragraph 10 of IAS 27, was previously accounting in its separate financial statements for its interest in a joint operation as an investment at cost or in accordance with IFRS 9 shall:






(a)


derecognise the investment and recognise the assets and the liabilities in respect of its interest in the joint operation at the amounts determined in accordance with paragraphs C7–C9.










(b)


provide a reconciliation between the investment derecognised, and the assets and liabilities recognised, together with any remaining difference adjusted in retained earnings, at the beginning of the earliest period presented.
















C13


The initial recognition exception in paragraphs 15 and 24 of IAS 12 does not apply when the entity recognises assets and liabilities relating to its interest in a joint operation in its separate financial statements resulting from applying the transition requirements for joint operations referred to in paragraph C12.





References to IFRS 9









C14


If an entity applies this IFRS but does not yet apply IFRS 9, any reference to IFRS 9 shall be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement.




WITHDRAWAL OF OTHER IFRSS








C15


This IFRS supersedes the following IFRSs:






(a)


IAS 31 Interests in Joint Ventures; and










(b)


SIC-13 Jointly Controlled Entities—Non-Monetary Contributions by Venturers.












Appendix D

Amendments to other IFRSs


This appendix sets out amendments to other IFRSs that are a consequence of the Board issuing IFRS 11. An entity shall apply the amendments for annual periods beginning on or after 1 January 2013. If an entity applies IFRS 11 for an earlier period, it shall apply the amendments for that earlier period. Amended paragraphs are shown with new text underlined and deleted text struck through.









D1


This table shows how the following references have been amended in other IFRSs.









Existing reference to




contained in




in




is amended to reference to





IAS 31 Interests in Joint Ventures



IFRS 2


paragraph 5


IFRS 11 Joint Arrangements





IFRS 9 (issued October 2010)


paragraph B4.3.12(c)




IAS 36


paragraph 4(c)




IFRIC 5


References




IFRIC 9


paragraph 5(c)




IAS 28 Investments in Associates



IAS 18


paragraph 6(b)


IAS 28 Investments in Associates and Joint Ventures





IAS 36


paragraph 4(b)




IFRIC 5


References




joint control over


IAS 24


Paragraph 9(a)(I) and 11(b)


joint control of




jointly controlled entity(ies)


IFRS 1


heading before paragraph 31, paragraphs 31 and D1(g), heading before paragraph D14, paragraphs D14 and D15


joint venture(s)




IAS 36


heading before paragraph 12(h) and paragraphs 12(h) and 12(h)(ii)




joint venture(s)


IAS 12


paragraphs 2, 15, 18(e), 24, heading before paragraph 38, paragraphs 38, 38(a), 44, 45, 81(f), 87 and 87C


joint arrangement(s)




IAS 21


definition of ‘foreign operation’ in paragraph 8 and paragraphs 11 and 18




venturer(s)


IAS 24


paragraphs 11(b) and 19(e)


joint venturer(s)









IFRS 1   
First-time Adoption of International Financial Reporting Standards










D2


Paragraph 39I is added as follows:






39I


IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 31, B7, C1, D1, D14 and D15 and added paragraph D31. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D3


Paragraph D1 is amended as follows:






D1


An entity may elect to use one or more of the following exemptions:






(a)


…










(p)


extinguishing financial liabilities with equity instruments (paragraph D25);










(q)


severe hyperinflation (paragraphs D26–D30).;










(r)


joint arrangements (paragraph D31).




















D4


After paragraph D30, a heading and paragraph D31 are added.

Joint arrangements







D31


A first-time adopter may apply the transition provisions in IFRS 11 with the following exception. When changing from proportionate consolidation to the equity method, a first-time adopter shall test for impairment the investment in accordance with IAS 36 as at the beginning of the earliest period presented, regardless of whether there is any indication that the investment may be impaired. Any resulting impairment shall be recognised as an adjustment to retained earnings at the beginning of the earliest period presented.









IFRS 2   
Share-based Payment










D5


Paragraph 63A is added as follows:






63A


IFRS 10 Consolidated Financial Statements and IFRS 11, issued in May 2011, amended paragraph 5 and Appendix A. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IFRS 5   
Non-current Assets Held for Sale and Discontinued Operations










D6


Paragraph 28 is amended as follows:






28


The entity shall include any required adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale in profit or loss [footnote omitted] from continuing operations in the period in which the criteria in paragraphs 7–9 are no longer met. Financial statements for the periods since classification as held for sale shall be amended accordingly if the disposal group or non-current asset that ceases to be classified as held for sale is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate. The entity shall present that adjustment in the same caption in the statement of comprehensive income used to present a gain or loss, if any, recognised in accordance with paragraph 37.
















D7


Paragraph 44G is added as follows:






44G


IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph 28. An entity shall apply that amendment when it applies IFRS 11.









IFRS 7   
Financial Instruments: Disclosures










D8


Paragraph 3(a) is amended as follows:






3


This IFRS shall be applied by all entities to all types of financial instruments, except:






(a)


those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements, or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27 or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IAS 39; in those cases, …




















D9


Paragraph 44O is added as follows:






44O


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph 3. An entity shall apply that amendment when it applies IFRS 10 and IFRS 11.









IFRS 9   
Financial Instruments (as issued in November 2009)









D10


Paragraph 8.1.2 is added as follows:






8.1.2


IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph C8 and deleted paragraphs C18–C23 and the related headings. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D11


In Appendix C, in paragraph C8, the amendments to paragraph 3(a) of IFRS 7 Financial Instruments: Disclosures are amended as follows:






3


This IFRS shall be applied by all entities to all types of financial instruments, except:






(a)


those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27 or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IAS 39 and IFRS 9; in those cases, …




















D12


The heading above paragraph C20 and paragraphs C20 and C21 are deleted.












D13


The heading above paragraph C22 and paragraphs C22 and C23 are deleted.





IFRS 9   
Financial Instruments (as issued in October 2010)









D14


Paragraph 7.1.2 is added as follows:






7.1.2


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 3.2.1, B3.2.1–B3.2.3, B4.3.12(c), B5.7.15, C11 and C30 and deleted paragraphs C23–C28 and the related headings. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
















D15


In Appendix C, in paragraph C11, the amendments to paragraph 3(a) of IFRS 7 Financial Instruments: Disclosures are amended as follows:






3


This IFRS shall be applied by all entities to all types of financial instruments, except:






(a)


those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27 or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IFRS 9; in those cases, …




















D16


The heading above paragraph C25 and paragraphs C25 and C26 are deleted.












D17


The heading above paragraph C27 and paragraphs C27 and C28 are deleted.












D18


In paragraph C30, the amendments to paragraph 4(a) of IAS 32 Financial Instruments: Presentation are amended as follows:







4




This Standard shall be applied by all entities to all types of financial instruments except:







(a)



those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27 or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IFRS 9; in those cases, …














IAS 7   
Statement of Cash Flows










D19


[Not applicable to requirements]












D20


Paragraphs 37 and 38 are amended as follows:






37


When accounting for an investment in an associate, a joint venture or a subsidiary accounted for by use of the equity or cost method, an investor restricts its reporting in the statement of cash flows to the cash flows between itself and the investee, for example, to dividends and advances.










38


An entity that reports its interest in an associate or a joint venture using the equity method includes in its statement of cash flows the cash flows in respect of its investments in the associate or joint venture, and distributions and other payments or receipts between it and the associate or joint venture.
















D21


Paragraph 50(b) is deleted.












D22


Paragraph 57 is added as follows:






57


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 37, 38 and 42B and deleted paragraph 50(b). An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IAS 12   
Income Taxes










D23


[Not applicable to requirements]












D24


[Not applicable to requirements]












D25


Paragraph 39 is amended as follows:







39




An entity shall recognise a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied:







(a)



the parent, investor, joint venturer or joint operator is able to control the timing of the reversal of the temporary difference; and











(b)



…





















D26


Paragraph 43 is amended as follows:






43


The arrangement between the parties to a joint arrangement usually deals with the distribution of the profits and identifies whether decisions on such matters require the consent of all the parties or a group of the parties. When the joint venturer or joint operator can control the timing of the distribution of its share of the profits of the joint arrangement and it is probable that its share of the profits will not be distributed in the foreseeable future, a deferred tax liability is not recognised.
















D27


Paragraph 98A is added as follows:






98A


IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 2, 15, 18(e), 24, 38, 39, 43–45, 81(f), 87 and 87C. An entity shall apply those amendments when it applies IFRS 11.









IAS 18   
Revenue










D28


[Not applicable to requirements]












D29


Paragraph 41 is added as follows:






41


IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph 6(b). An entity shall apply that amendment when it applies IFRS 11.









IAS 21   
The Effects of Changes in Foreign Exchange Rates










D30


[Not applicable to requirements]












D31


In paragraphs 3(b) and 44 ‘proportionate consolidation’ and in paragraph 33 ‘proportionately consolidated’ are deleted.












D32


In paragraph 45, ‘IAS 31 Interests in Joint Ventures’ is deleted.












D33


In paragraph 46 the last sentence is amended as follows:






46


… The same approach is used in applying the equity method to associates and joint ventures in accordance with IAS 28 (as amended in 2011).
















D34


Paragraph 48A is amended as follows:






48A


In addition to the disposal of an entity’s entire interest in a foreign operation, the following partial disposals are accounted for as disposals:






(a)


when the partial disposal involves the loss of control of a subsidiary that includes a foreign operation, regardless of whether the entity retains a non-controlling interest in its former subsidiary after the partial disposal; and










(b)


when the retained interest after the partial disposal of an interest in a joint arrangement or a partial disposal of an interest in an associate that includes a foreign operation is a financial asset that includes a foreign operation.










(c)



[deleted]




















D35


Paragraph 60F is added as follows:






60F


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 3(b), 8, 11, 18, 19, 33, 44–46 and 48A. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IAS 24   
Related Party Disclosures










D36


Paragraph 3 is amended as follows:







3




This Standard requires disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent or investors with joint control of, or significant influence over, an investee presented in accordance with IFRS 10 Consolidated Financial Statements or IAS 27 Separate Financial Statements. This Standard also applies to individual financial statements.

















D37


Paragraph 19 is amended as follows:







19




The disclosures required by paragraph 18 shall be made separately for each of the following categories:








(a)




the parent;












(b)




entities with joint control of, or significance influence over, the entity;












(c)




subsidiaries;…





















D38


Paragraph 25 is amended as follows:







25




A reporting entity is exempt from the disclosure requirements of paragraph 18 in relation to related party transactions and outstanding balances, including commitments, with:








(a)




a government that has control, or joint control of, or significance influence over, the reporting entity; and












(b)




another entity that is a related party because the same government has control, or joint control of, or significance influence over, both the reporting entity and the other entity.





















D39


Paragraph 28A is added as follows:






28A


IFRS 10, IFRS 11 Joint Arrangements and IFRS 12, issued in May 2011, amended paragraphs 3, 9, 11(b), 15, 19(b) and (e) and 25. An entity shall apply those amendments when it applies IFRS 10, IFRS 11 and IFRS 12.









IAS 32   
Financial Instruments: Presentation










D40


Paragraph 4(a) is amended as follows:







4




This Standard shall be applied by all entities to all types of financial instruments except:








(a)




those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IAS 27 or IAS 28 permits an entity to account for an interest in a subsidiary, associate or joint venture using IAS 39; …





















D41


Paragraph 97I is added as follows:






97I


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 4(a) and AG29. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IAS 33   
Earnings per Share










D42


Paragraph 40 and A11 are amended and paragraph 74B is added as follows:






40


A subsidiary, joint venture or associate may issue to parties other than the parent or investors with joint control of, or significant influence over, the investee potential ordinary shares that are convertible into either ordinary shares of the subsidiary, joint venture or associate, or ordinary shares of the parent or investors with joint control of, or significant influence (the reporting entity) over, the investee. If these potential ordinary shares of the subsidiary, joint venture or associate have a dilutive effect on the basic earnings per share of the reporting entity, they are included in the calculation of diluted earnings per share.










A11


Potential ordinary shares of a subsidiary, joint venture or associate convertible into either ordinary shares of the subsidiary, joint venture or associate, or ordinary shares of the parent, or investors with joint control of, or significant influence (the reporting entity) over, the investee are included in the calculation of diluted earnings per share as follows: …










74B


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 4, 40 and A11. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IAS 36   
Impairment of Assets










D43


Paragraph 140H is added as follows:






140H


IFRS 10 and IFRS 11, issued in May 2011, amended paragraph 4, the heading above paragraph 12(h) and paragraph 12(h). An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IAS 38   
Intangible Assets










D44


Paragraph 3(e) is amended as follows:






3


If another Standard prescribes the accounting for a specific type of intangible asset, an entity applies that Standard instead of this Standard. For example, this Standard does not apply to:






(a)


…










(e)


financial assets as defined in IAS 32. The recognition and measurement of some financial assets are covered by IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures.










(f)


…




















D45


Paragraph 130F is added as follows:






130F


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph 3(e). An entity shall apply that amendment when it applies IFRS 10 and IFRS 11.









IAS 39   
Financial Instruments: Recognition and Measurement (as amended at October 2009)









D46


Paragraph 2(a) is amended as follows:







2




This Standard shall be applied by all entities to all types of financial instruments except:








(a)




those interests in subsidiaries, associates and joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, entities shall apply this Standard to an interest in a subsidiary, associate or joint venture that according to IAS 27 or IAS 28 is accounted for under this Standard. …





















D47


Paragraphs AG3 and AG4I(a) are amended as follows:






AG3


Sometimes, an entity makes what it views as a ‘strategic investment’ in equity instruments issued by another entity, with the intention of establishing or maintaining a long-term operating relationship with the entity in which the investment is made. The investor or joint venturer entity uses IAS 28 to determine whether the equity method of accounting is appropriate for such an investment. If the equity method is not appropriate, the entity applies this Standard to that strategic investment.










AG4I(a)


The entity is a venture capital organisation, mutual fund, unit trust or similar entity whose business is investing in financial assets with a view to profiting from their total return in the form of interest or dividends and changes in fair value. IAS 28 allows such investments to be measured at fair value through profit or loss in accordance with this Standard. An entity may apply the same accounting policy to other investments managed on a total return basis but over which its influence is insufficient for them to be within the scope of IAS 28.
















D48


Paragraph 103P is added as follows:






103P


IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 2(a), 15, AG3, AG36–AG38 and AG4I(a). An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IFRIC 5   
Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds










D49


Paragraphs 8 and 9 are amended as follows:






8


The contributor shall determine whether it has control or joint control of, or significance influence over, the fund by reference to IFRS 10, IFRS 11 and IAS 28. If it does, the contributor shall account for its interest in the fund in accordance with those Standards.










9


If a contributor does not have control or joint control of, or significance influence over, the fund, the contributor shall recognise the right to receive reimbursement from the fund as a reimbursement in accordance with IAS 37. This reimbursement shall be measured at the lower of:






(a)


…




















D50


Paragraph 14B is added as follows:






14B


IFRS 10 and IFRS 11, issued in May 2011, amended paragraphs 8 and 9. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.









IFRIC 9   
Reassessment of Embedded Derivatives










D51


[Not applicable to requirements]












D52


Paragraph 12 is added as follows:






12


IFRS 11, issued in May 2011, amended paragraph 5(c). An entity shall apply that amendment when it applies IFRS 11.









IFRIC 16   
Hedges of a Net Investment in a Foreign Operation










D53


The footnote to paragraph 2 is amended as follows:






*


This will be the case for consolidated financial statements, financial statements in which investments such as associates or joint ventures are accounted for using the equity method and financial statements that include a branch or a joint operation as defined in IFRS 11 Joint Arrangements.












INTERNATIONAL FINANCIAL REPORTING STANDARD 12



Disclosure of Interests in Other Entities


OBJECTIVE









1




The objective of this IFRS is to require an entity to disclose information that enables users of its financial statements to evaluate:







(a)



the nature of, and risks associated with, its interests in other entities; and











(b)



the effects of those interests on its financial position, financial performance and cash flows.










Meeting the objective









2


To meet the objective in paragraph 1, an entity shall disclose:






(a)


the significant judgements and assumptions it has 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 (paragraphs 7–9); and










(b)


information about its interests in:






(i)


subsidiaries (paragraphs 10–19);










(ii)


joint arrangements and associates (paragraphs 20–23); and










(iii)



structured entities that are not controlled by the entity (unconsolidated structured entities) (paragraphs 24–31).




















3


If the disclosures required by this IFRS, together with disclosures required by other IFRSs, do not meet the objective in paragraph 1, an entity shall disclose whatever additional information is necessary to meet that objective.












4


An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the requirements in this IFRS. It shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics (see paragraphs B2–B6).




SCOPE








5


This IFRS shall be applied by an entity that has an interest in any of the following:






(a)


subsidiaries










(b)


joint arrangements (ie joint operations or joint ventures)










(c)


associates










(d)


unconsolidated structured entities.
















6


This IFRS does not apply to:






(a)


post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee Benefits applies.










(b)


an entity’s separate financial statements to which IAS 27 Separate Financial Statements applies. However, if an entity has interests in unconsolidated structured entities and prepares separate financial statements as its only financial statements, it shall apply the requirements in paragraphs 24–31 when preparing those separate financial statements.










(c)


an interest held by an entity that participates in, but does not have joint control of, a joint arrangement unless that interest results in significant influence over the arrangement or is an interest in a structured entity.










(d)


an interest in another entity that is accounted for in accordance with IFRS 9 Financial Instruments. However, an entity shall apply this IFRS:






(i)


when that interest is an interest in an associate or a joint venture that, in accordance with IAS 28 Investments in Associates and Joint Ventures, is measured at fair value through profit or loss; or










(ii)


when that interest is an interest in an unconsolidated structured entity.












SIGNIFICANT JUDGEMENTS AND ASSUMPTIONS









7




An entity shall disclose information about significant judgements and assumptions it has made (and changes to those judgements and assumptions) in determining:







(a)



that it has control of another entity, ie an investee as described in paragraphs 5 and 6 of IFRS 10 Consolidated Financial Statements;











(b)



that it has joint control of an arrangement or significant influence over another entity; and











(c)



the type of joint arrangement (ie joint operation or joint venture) when the arrangement has been structured through a separate vehicle.

















8


The significant judgements and assumptions disclosed in accordance with paragraph 7 include those made by the entity when changes in facts and circumstances are such that the conclusion about whether it has control, joint control or significant influence changes during the reporting period.












9


To comply with paragraph 7, an entity shall disclose, for example, significant judgements and assumptions made in determining that:






(a)


it does not control another entity even though it holds more than half of the voting rights of the other entity.










(b)


it controls another entity even though it holds less than half of the voting rights of the other entity.










(c)


it is an agent or a principal (see paragraphs 58–72 of IFRS 10).










(d)


it does not have significant influence even though it holds 20 per cent or more of the voting rights of another entity.










(e)


it has significant influence even though it holds less than 20 per cent of the voting rights of another entity.








INTERESTS IN SUBSIDIARIES









10




An entity shall 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 (paragraph 12); 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 (paragraph 13);











(ii)



the nature of, and changes in, the risks associated with its interests in consolidated structured entities (paragraphs 14–17);











(iii)



the consequences of changes in its ownership interest in a subsidiary that do not result in a loss of control (paragraph 18); and











(iv)



the consequences of losing control of a subsidiary during the reporting period (paragraph 19).





















11


When the financial statements of a subsidiary used in the preparation of consolidated financial statements are as of a date or for a period that is different from that of the consolidated financial statements (see paragraphs B92 and B93 of IFRS 10), an entity shall disclose:






(a)


the date of the end of the reporting period of the financial statements of that subsidiary; and










(b)


the reason for using a different date or period.









The interest that non-controlling interests have in the group’s activities and cash flows









12


An entity shall disclose for each of its subsidiaries that have non-controlling interests that are material to the reporting entity:






(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 from the proportion of ownership interests held.










(e)


the profit or loss allocated to 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.










(g)


summarised financial information about the subsidiary (see paragraph B10).









The nature and extent of significant restrictions









13


An entity shall disclose:






(a)


significant restrictions (eg statutory, contractual and regulatory restrictions) on its ability to access or use the assets and settle the liabilities of the group, such as:






(i)


those that restrict the ability of a parent or its subsidiaries to transfer cash or other assets to (or from) other entities within the group.










(ii)


guarantees or other requirements that may restrict dividends and other capital distributions being paid, or loans and advances being made or repaid, to (or from) other entities within the group.














(b)


the nature and extent to which protective rights of non-controlling interests can significantly restrict the entity’s ability to access or use the assets and settle the liabilities of the group (such as when a parent is obliged to settle liabilities of a subsidiary before settling its own liabilities, or approval of non-controlling interests is required either to access the assets or to settle the liabilities of a subsidiary).










(c)


the carrying amounts in the consolidated financial statements of the assets and liabilities to which those restrictions apply.









Nature of the risks associated with an entity’s interests in consolidated structured entities









14


An entity shall disclose the terms of any contractual arrangements that could require the parent or its subsidiaries to provide financial support to a consolidated structured entity, including events or circumstances that could expose the reporting entity to a loss (eg liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or provide financial support).












15


If during the reporting period a parent or any of its subsidiaries has, without having a contractual obligation to do so, provided financial or other support to a consolidated structured entity (eg purchasing assets of or instruments issued by the structured entity), the entity shall disclose:






(a)


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










(b)


the reasons for providing the support.
















16


If during the reporting period a parent or any of its subsidiaries has, without having a contractual obligation to do so, provided financial or other support to a previously unconsolidated structured entity and that provision of support resulted in the entity controlling the structured entity, the entity shall disclose an explanation of the relevant factors in reaching that decision.












17


An entity shall disclose any current intentions to provide financial or other support to a consolidated structured entity, including intentions to assist the structured entity in obtaining financial support.





Consequences of changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control









18


An entity shall present a schedule that shows the effects on the equity attributable to owners of the parent of any changes in its ownership interest in a subsidiary that do not result in a loss of control.





Consequences of losing control of a subsidiary during the reporting period









19


An entity shall disclose the gain or loss, if any, calculated in accordance with paragraph 25 of IFRS 10, and:






(a)


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










(b)


the line item(s) in profit or loss in which the gain or loss is recognised (if not presented separately).








INTERESTS IN JOINT ARRANGEMENTS AND ASSOCIATES









20




An entity shall disclose information that enables users of its financial statements to evaluate:







(a)



the nature, extent and financial effects of its interests in joint arrangements and associates, including the nature and effects of its contractual relationship with the other investors with joint control of, or significant influence over, joint arrangements and associates (paragraphs 21 and 22); and











(b)



the nature of, and changes in, the risks associated with its interests in joint ventures and associates (paragraph 23).










Nature, extent and financial effects of an entity’s interests in joint arrangements and associates









21


An entity shall disclose:






(a)


for each joint arrangement and associate that is material to the reporting entity:






(i)


the name of the joint arrangement or associate.










(ii)


the nature of the entity’s relationship with the joint arrangement or associate (by, for example, describing the nature of the activities of the joint arrangement or associate and whether they are strategic to the entity’s activities).










(iii)


the principal place of business (and country of incorporation, if applicable and different from the principal place of business) of the joint arrangement or associate.










(iv)


the proportion of ownership interest or participating share held by the entity and, if different, the proportion of voting rights held (if applicable).














(b)


for each joint venture and associate that is material to the reporting entity:






(i)


whether the investment in the joint venture or associate is measured using the equity method or at fair value.










(ii)


summarised financial information about the joint venture or associate as specified in paragraphs B12 and B13.










(iii)


if the joint venture or associate is accounted for using the equity method, the fair value of its investment in the joint venture or associate, if there is a quoted market price for the investment.














(c)


financial information as specified in paragraph B16 about the entity’s investments in joint ventures and associates that are not individually material:






(i)


in aggregate for all individually immaterial joint ventures and, separately,










(ii)


in aggregate for all individually immaterial associates.




















22


An entity shall also disclose:






(a)


the nature and extent of any significant restrictions (eg resulting from borrowing arrangements, regulatory requirements or contractual arrangements between investors with joint control of or significant influence over a joint venture or an associate) on the ability of joint ventures or associates to transfer funds to the entity in the form of cash dividends, or to repay loans or advances made by the entity.










(b)


when the financial statements of a joint venture or associate used in applying the equity method are as of a date or for a period that is different from that of the entity:






(i)


the date of the end of the reporting period of the financial statements of that joint venture or associate; and










(ii)


the reason for using a different date or period.














(c)


the unrecognised share of losses of a joint venture or associate, both for the reporting period and cumulatively, if the entity has stopped recognising its share of losses of the joint venture or associate when applying the equity method.









Risks associated with an entity’s interests in joint ventures and associates









23


An entity shall disclose:






(a)


commitments that it has relating to its joint ventures separately from the amount of other commitments as specified in paragraphs B18–B20.










(b)


in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, unless the probability of loss is remote, contingent liabilities incurred relating to its interests in joint ventures or associates (including its share of contingent liabilities incurred jointly with other investors with joint control of, or significant influence over, the joint ventures or associates), separately from the amount of other contingent liabilities.








INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES









24




An entity shall disclose information that enables users of its financial statements:







(a)



to understand the nature and extent of its interests in unconsolidated structured entities (paragraphs 26–28); and











(b)



to evaluate the nature of, and changes in, the risks associated with its interests in unconsolidated structured entities (paragraphs 29–31).

















25


The information required by paragraph 24(b) includes information about an entity’s exposure to risk from involvement that it had with unconsolidated structured entities in previous periods (eg sponsoring the structured entity), even if the entity no longer has any contractual involvement with the structured entity at the reporting date.





Nature of interests









26


An entity shall disclose qualitative and quantitative information about its interests in unconsolidated structured entities, including, but not limited to, the nature, purpose, size and activities of the structured entity and how the structured entity is financed.












27


If an entity has sponsored an unconsolidated structured entity for which it does not provide information required by paragraph 29 (eg because it does not have an interest in the entity at the reporting date), the entity shall disclose:






(a)


how it has determined which structured entities it has sponsored;










(b)



income from those structured entities during the reporting period, including a description of the types of income presented; and










(c)


the carrying amount (at the time of transfer) of all assets transferred to those structured entities during the reporting period.
















28


An entity shall present the information in paragraph 27(b) and (c) in tabular format, unless another format is more appropriate, and classify its sponsoring activities into relevant categories (see paragraphs B2–B6).





Nature of risks









29


An entity shall disclose in tabular format, unless another format is more appropriate, a summary of:






(a)


the carrying amounts of the assets and liabilities recognised in its financial statements relating to its interests in unconsolidated structured entities.










(b)


the line items in the statement of financial position in which those assets and liabilities are recognised.










(c)


the amount that best represents the entity’s maximum exposure to loss from its interests in unconsolidated structured entities, including how the maximum exposure to loss is determined. If an entity cannot quantify its maximum exposure to loss from its interests in unconsolidated structured entities it shall disclose that fact and the reasons.










(d)


a comparison of the carrying amounts of the assets and liabilities of the entity that relate to its interests in unconsolidated structured entities and the entity’s maximum exposure to loss from those entities.
















30


If during the reporting period an entity has, without having a contractual obligation to do so, provided financial or other support to an unconsolidated structured entity in which it previously had or currently has an interest (for example, purchasing assets of or instruments issued by the structured entity), the entity shall disclose:






(a)


the type and amount of support provided, including situations in which the entity assisted the structured entity in obtaining financial support; and










(b)


the reasons for providing the support.
















31


An entity shall disclose any current intentions to provide financial or other support to an unconsolidated structured entity, including intentions to assist the structured entity in obtaining financial support.






Appendix A

Defined terms


This appendix is an integral part of the IFRS.







income from a structured entity


For the purpose of this IFRS, income from a structured entity includes, but is not limited to, recurring and non-recurring fees, interest, dividends, gains or losses on the remeasurement or derecognition of interests in structured entities and gains or losses from the transfer of assets and liabilities to the structured entity.




interest in another entity


For the purpose of this IFRS, an interest in another entity refers to contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. An interest in another entity can be evidenced by, but is not limited to, the holding of equity or debt instruments as well as other forms of involvement such as the provision of funding, liquidity support, credit enhancement and guarantees. It includes the means by which an entity has control or joint control of, or significant influence over, another entity. An entity does not necessarily have an interest in another entity solely because of a typical customer supplier relationship.
Paragraphs B7–B9 provide further information about interests in other entities.
Paragraphs B55–B57 of IFRS 10 explain variability of returns.




structured entity


An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.
Paragraphs B22–B24 provide further information about structured entities.




The following terms are defined in IAS 27 (as amended in 2011), IAS 28 (as amended in 2011), IFRS 10 and IFRS 11 Joint Arrangements and are used in this IFRS with the meanings specified in those IFRSs:






—


associate










—


consolidated financial statements










—


control of an entity










—


equity method










—


group










—


joint arrangement










—


joint control










—


joint operation










—


joint venture










—


non-controlling interest










—


parent










—


protective rights










—


relevant activities










—


separate financial statements










—


separate vehicle










—


significant influence










—


subsidiary.








Appendix B

Application guidance


This appendix is an integral part of the IFRS. It describes the application of paragraphs 1–31 and has the same authority as the other parts of the IFRS.









B1


The examples in this appendix portray hypothetical situations. Although some aspects of the examples may be present in actual fact patterns, all relevant facts and circumstances of a particular fact pattern would need to be evaluated when applying IFRS 12.




AGGREGATION (PARAGRAPH 4)








B2


An entity shall decide, in the light of its circumstances, how much detail it provides to satisfy the information needs of users, how much emphasis it places on different aspects of the requirements and how it aggregates the information. It is necessary to strike a balance between burdening financial statements with excessive detail that may not assist users of financial statements and obscuring information as a result of too much aggregation.












B3


An entity may aggregate the disclosures required by this IFRS for interests in similar entities if aggregation is consistent with the disclosure objective and the requirement in paragraph B4, and does not obscure the information provided. An entity shall disclose how it has aggregated its interests in similar entities.












B4


An entity shall present information separately for interests in:






(a)


subsidiaries;










(b)


joint ventures;










(c)


joint operations;










(d)


associates; and










(e)


unconsolidated structured entities.
















B5


In determining whether to aggregate information, an entity shall consider quantitative and qualitative information about the different risk and return characteristics of each entity it is considering for aggregation and the significance of each such entity to the reporting entity. The entity shall present the disclosures in a manner that clearly explains to users of financial statements the nature and extent of its interests in those other entities.












B6


Examples of aggregation levels within the classes of entities set out in paragraph B4 that might be appropriate are:






(a)


nature of activities (eg a research and development entity, a revolving credit card securitisation entity).










(b)


industry classification.










(c)


geography (eg country or region).








INTERESTS IN OTHER ENTITIES








B7


An interest in another entity refers to contractual and non-contractual involvement that exposes the reporting entity to variability of returns from the performance of the other entity. Consideration of the purpose and design of the other entity may help the reporting entity when assessing whether it has an interest in that entity and, therefore, whether it is required to provide the disclosures in this IFRS. That assessment shall include consideration of the risks that the other entity was designed to create and the risks the other entity was designed to pass on to the reporting entity and other parties.












B8


A reporting entity is typically exposed to variability of returns from the performance of another entity by holding instruments (such as equity or debt instruments issued by the other entity) or having another involvement that absorbs variability. For example, assume a structured entity holds a loan portfolio. The structured entity obtains a credit default swap from another entity (the reporting entity) to protect itself from the default of interest and principal payments on the loans. The reporting entity has involvement that exposes it to variability of returns from the performance of the structured entity because the credit default swap absorbs variability of returns of the structured entity.












B9


Some instruments are designed to transfer risk from a reporting entity to another entity. Such instruments create variability of returns for the other entity but do not typically expose the reporting entity to variability of returns from the performance of the other entity. For example, assume a structured entity is established to provide investment opportunities for investors who wish to have exposure to entity Z’s credit risk (entity Z is unrelated to any party involved in the arrangement). The structured entity obtains funding by issuing to those investors notes that are linked to entity Z’s credit risk (credit-linked notes) and uses the proceeds to invest in a portfolio of risk-free financial assets. The structured entity obtains exposure to entity Z’s credit risk by entering into a credit default swap (CDS) with a swap counterparty. The CDS passes entity Z’s credit risk to the structured entity in return for a fee paid by the swap counterparty. The investors in the structured entity receive a higher return that reflects both the structured entity’s return from its asset portfolio and the CDS fee. The swap counterparty does not have involvement with the structured entity that exposes it to variability of returns from the performance of the structured entity because the CDS transfers variability to the structured entity, rather than absorbing variability of returns of the structured entity.




SUMMARISED FINANCIAL INFORMATION FOR SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (PARAGRAPHS 12 AND 21)








B10


For each subsidiary that has non-controlling interests that are material to the reporting entity, an entity shall disclose:






(a)


dividends paid to non-controlling interests.










(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. That 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.
















B11


The summarised financial information required by paragraph B10(b) shall be the amounts before inter-company eliminations.












B12


For each joint venture and associate that is material to the reporting entity, an entity shall disclose:






(a)


dividends received from the joint venture or associate.










(b)


summarised financial information for the joint venture or associate (see paragraphs B14 and B15) including, but not necessarily limited to:






(i)


current assets.










(ii)


non-current assets.










(iii)


current liabilities.










(iv)


non-current liabilities.










(v)


revenue.










(vi)


profit or loss from continuing operations.










(vii)


post-tax profit or loss from discontinued operations.










(viii)


other comprehensive income.










(ix)


total comprehensive income.




















B13


In addition to the summarised financial information required by paragraph B12, an entity shall disclose for each joint venture that is material to the reporting entity the amount of:






(a)


cash and cash equivalents included in paragraph B12(b)(i).










(b)


current financial liabilities (excluding trade and other payables and provisions) included in paragraph B12(b)(iii).










(c)


non-current financial liabilities (excluding trade and other payables and provisions) included in paragraph B12(b)(iv).










(d)


depreciation and amortisation.










(e)


interest income.










(f)


interest expense.










(g)


income tax expense or income.
















B14


The summarised financial information presented in accordance with paragraphs B12 and B13 shall be the amounts included in the IFRS financial statements of the joint venture or associate (and not the entity’s share of those amounts). If the entity accounts for its interest in the joint venture or associate using the equity method:






(a)


the amounts included in the IFRS financial statements of the joint venture or associate shall be adjusted to reflect adjustments made by the entity when using the equity method, such as fair value adjustments made at the time of acquisition and adjustments for differences in accounting policies.










(b)


the entity shall provide a reconciliation of the summarised financial information presented to the carrying amount of its interest in the joint venture or associate.
















B15


An entity may present the summarised financial information required by paragraphs B12 and B13 on the basis of the joint venture’s or associate’s financial statements if:






(a)


the entity measures its interest in the joint venture or associate at fair value in accordance with IAS 28 (as amended in 2011); and










(b)


the joint venture or associate does not prepare IFRS financial statements and preparation on that basis would be impracticable or cause undue cost.




In that case, the entity shall disclose the basis on which the summarised financial information has been prepared.












B16


An entity shall disclose, in aggregate, the carrying amount of its interests in all individually immaterial joint ventures or associates that are accounted for using the equity method. An entity shall also disclose separately the aggregate amount of its share of those joint ventures’ or associates’:






(a)


profit or loss from continuing operations.










(b)


post-tax profit or loss from discontinued operations.










(c)


other comprehensive income.










(d)


total comprehensive income.




An entity provides the disclosures separately for joint ventures and associates.












B17


When an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) is classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the entity is not required to disclose summarised financial information for that subsidiary, joint venture or associate in accordance with paragraphs B10–B16.




COMMITMENTS FOR JOINT VENTURES (PARAGRAPH 23(a))








B18


An entity shall disclose total commitments it has made but not recognised at the reporting date (including its share of commitments made jointly with other investors with joint control of a joint venture) relating to its interests in joint ventures. Commitments are those that may give rise to a future outflow of cash or other resources.












B19


Unrecognised commitments that may give rise to a future outflow of cash or other resources include:






(a)


unrecognised commitments to contribute funding or resources as a result of, for example:






(i)


the constitution or acquisition agreements of a joint venture (that, for example, require an entity to contribute funds over a specific period).










(ii)


capital-intensive projects undertaken by a joint venture.










(iii)


unconditional purchase obligations, comprising procurement of equipment, inventory or services that an entity is committed to purchasing from, or on behalf of, a joint venture.










(iv)


unrecognised commitments to provide loans or other financial support to a joint venture.










(v)


unrecognised commitments to contribute resources to a joint venture, such as assets or services.










(vi)


other non-cancellable unrecognised commitments relating to a joint venture.














(b)


unrecognised commitments to acquire another party’s ownership interest (or a portion of that ownership interest) in a joint venture if a particular event occurs or does not occur in the future.
















B20


The requirements and examples in paragraphs B18 and B19 illustrate some of the types of disclosure required by paragraph 18 of IAS 24 Related Party Disclosures.




INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (PARAGRAPHS 24–31)

Structured entities









B21


A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.












B22


A structured entity often has some or all of the following features or attributes:






(a)


restricted activities.










(b)


a narrow and well-defined objective, such as to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an entity or provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors.










(c)


insufficient equity to permit the structured entity to finance its activities without subordinated financial support.










(d)


financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).
















B23


Examples of entities that are regarded as structured entities include, but are not limited to:






(a)


securitisation vehicles.










(b)


asset-backed financings.










(c)


some investment funds.
















B24


An entity that is controlled by voting rights is not a structured entity simply because, for example, it receives funding from third parties following a restructuring.





Nature of risks from interests in unconsolidated structured entities (paragraphs 29–31)









B25


In addition to the information required by paragraphs 29–31, an entity shall disclose additional information that is necessary to meet the disclosure objective in paragraph 24(b).












B26


Examples of additional information that, depending on the circumstances, might be relevant to an assessment of the risks to which an entity is exposed when it has an interest in an unconsolidated structured entity are:






(a)


the terms of an arrangement that could require the entity to provide financial support to an unconsolidated structured entity (eg liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or provide financial support), including:






(i)


a description of events or circumstances that could expose the reporting entity to a loss.










(ii)


whether there are any terms that would limit the obligation.










(iii)


whether there are any other parties that provide financial support and, if so, how the reporting entity’s obligation ranks with those of other parties.














(b)


losses incurred by the entity during the reporting period relating to its interests in unconsolidated structured entities.










(c)


the types of income the entity received during the reporting period from its interests in unconsolidated structured entities.










(d)


whether the entity is required to absorb losses of an unconsolidated structured entity before other parties, the maximum limit of such losses for the entity, and (if relevant) the ranking and amounts of potential losses borne by parties whose interests rank lower than the entity’s interest in the unconsolidated structured entity.










(e)


information about any liquidity arrangements, guarantees or other commitments with third parties that may affect the fair value or risk of the entity’s interests in unconsolidated structured entities.










(f)


any difficulties an unconsolidated structured entity has experienced in financing its activities during the reporting period.










(g)


in relation to the funding of an unconsolidated structured entity, the forms of funding (eg commercial paper or medium-term notes) and their weighted-average life. That information might include maturity analyses of the assets and funding of an unconsolidated structured entity if the structured entity has longer-term assets funded by shorter-term funding.












Appendix C

Effective date and transition


This appendix is an integral part of the IFRS and has the same authority as the other parts of the IFRS.

EFFECTIVE DATE AND TRANSITION








C1


An entity shall apply this IFRS for annual periods beginning on or after 1 January 2013. Earlier application is permitted.












C2


An entity is encouraged to provide information required by this IFRS earlier than annual periods beginning on or after 1 January 2013. Providing some of the disclosures required by this IFRS does not compel the entity to comply with all the requirements of this IFRS or to apply IFRS 10, IFRS 11, IAS 27 (as amended in 2011) and IAS 28 (as amended in 2011) early.




REFERENCES TO IFRS 9








C3


If an entity applies this IFRS but does not yet apply IFRS 9, any reference to IFRS 9 shall be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement.








Appendix D

Amendments to other IFRSs


This appendix sets out amendments to other IFRSs that are a consequence of the Board issuing IFRS 12. An entity shall apply the amendments for annual periods beginning on or after 1 January 2013. If an entity applies IFRS 12 for an earlier period, it shall apply the amendments for that earlier period. Amended paragraphs are shown with new text underlined and deleted text struck through.


IAS 1   
Presentation of Financial Statements










D1


Paragraphs 119 and 124 are amended and paragraph 139H is added as follows.






119


… An example is disclosure of whether an entity applies the fair value or cost model to its investment property (see IAS 40 Investment Property). Some IFRSs specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. …










124


Some of the disclosures made in accordance with paragraph 122 are required by other IFRSs. For example IFRS 12 Disclosure of Interests in Other Entities requires an entity to disclose the judgements it has made in determining whether it controls another entity. IAS 40 requires…










139H


IFRSs 10 and 12, issued in May 2011, amended paragraphs 4, 119, 123 and 124. An entity shall apply those amendments when it applies IFRSs 10 and 12.









IAS 24   
Related Party Disclosures










D2


Paragraph 15 is amended and paragraph 28A is added as follows.






15


The requirement to disclose related party relationships between a parent and its subsidiaries is in addition to the disclosure requirements in IAS 27 and IFRS 12 Disclosure of Interests in Other Entities.










28A


IFRS 10, IFRS 11 Joint Arrangements and IFRS 12, issued in May 2011, amended paragraphs 3, 9, 11(b), 15, 19(b) and (e) and 25. An entity shall apply those amendments when it applies IFRS 10, IFRS 11 and IFRS 12.











INTERNATIONAL ACCOUNTING STANDARD 27



Separate Financial Statements


OBJECTIVE








1


The objective of this Standard is to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.




SCOPE









2




This Standard shall be applied in accounting for investments in subsidiaries, joint ventures and associates when an entity elects, or is required by local regulations, to present separate financial statements.













3


This Standard does not mandate which entities produce separate financial statements. It applies when an entity prepares separate financial statements that comply with International Financial Reporting Standards.




DEFINITIONS









4




The following terms are used in this Standard with the meanings specified:







 




Consolidated financial statements are the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.











 




Separate financial statements are those presented by a parent (ie an investor with control of a subsidiary) or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or in accordance with IFRS 9 Financial Instruments.

















5


The following terms are defined in Appendix A of IFRS 10 Consolidated Financial Statements, Appendix A of IFRS 11 Joint Arrangements and paragraph 3 of IAS 28 Investments in Associates and Joint Ventures:






—


associate










—


control of an investee










—


group










—


joint control










—


joint venture










—


joint venturer










—


parent










—


significant influence










—


subsidiary.
















6


Separate financial statements are those presented in addition to consolidated financial statements or in addition to financial statements in which investments in associates or joint ventures are accounted for using the equity method, other than in the circumstances set out in paragraph 8. Separate financial statements need not be appended to, or accompany, those statements.












7


Financial statements in which the equity method is applied are not separate financial statements. Similarly, the financial statements of an entity that does not have a subsidiary, associate or joint venturer’s interest in a joint venture are not separate financial statements.












8


An entity that is exempted in accordance with paragraph 4(a) of IFRS 10 from consolidation or paragraph 17 of IAS 28 (as amended in 2011) from applying the equity method may present separate financial statements as its only financial statements.




PREPARATION OF SEPARATE FINANCIAL STATEMENTS









9




Separate financial statements shall be prepared in accordance with all applicable IFRSs, except as provided in paragraph 10.














10




When an entity prepares separate financial statements, it shall account for investments in subsidiaries, joint ventures and associates either:







(a)



at cost, or











(b)



in accordance with IFRS 9.






The entity shall apply the same accounting for each category of investments. Investments accounted for at cost shall be accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations when they are classified as held for sale (or included in a disposal group that is classified as held for sale). The measurement of investments accounted for in accordance with IFRS 9 is not changed in such circumstances.














11




If an entity elects, in accordance with paragraph 18 of IAS 28 (as amended in 2011), to measure its investments in associates or joint ventures at fair value through profit or loss in accordance with IFRS 9, it shall also account for those investments in the same way in its separate financial statements.














12




An entity shall recognise a dividend from a subsidiary, a joint venture or an associate in profit or loss in its separate financial statements when its right to receive the dividend is established.













13


When a parent reorganises the structure of its group by establishing a new entity as its parent in a manner that satisfies the following criteria:






(a)


the new parent obtains control of the original parent by issuing equity instruments in exchange for existing equity instruments of the original parent;










(b)


the assets and liabilities of the new group and the original group are the same immediately before and after the reorganisation; and










(c)


the owners of the original parent before the reorganisation have the same absolute and relative interests in the net assets of the original group and the new group immediately before and after the reorganisation,




and the new parent accounts for its investment in the original parent in accordance with paragraph 10(a) in its separate financial statements, the new parent shall measure cost at the carrying amount of its share of the equity items shown in the separate financial statements of the original parent at the date of the reorganisation.












14


Similarly, an entity that is not a parent might establish a new entity as its parent in a manner that satisfies the criteria in paragraph 13. The requirements in paragraph 13 apply equally to such reorganisations. In such cases, references to ‘original parent’ and ‘original group’ are to the ‘original entity’.




DISCLOSURE









15




An entity shall apply all applicable IFRSs when providing disclosures in its separate financial statements, including the requirements in paragraphs 16 and 17.














16




When a parent, in accordance with paragraph 4(a) of IFRS 10, elects not to prepare consolidated financial statements and instead prepares separate financial statements, it shall disclose in those separate financial statements:







(a)



the fact that the financial statements are separate financial statements; that the exemption from consolidation has been used; the name and principal place of business (and country of incorporation, if different) of the entity whose consolidated financial statements that comply with International Financial Reporting Standards have been produced for public use; and the address where those consolidated financial statements are obtainable.











(b)



a list of significant investments in subsidiaries, joint ventures and associates, including:







(i)



the name of those investees.











(ii)



the principal place of business (and country of incorporation, if different) of those investees.











(iii)



its proportion of the ownership interest (and its proportion of the voting rights, if different) held in those investees.















(c)



a description of the method used to account for the investments listed under (b).


















17




When a parent (other than a parent covered by paragraph 16) or an investor with joint control of, or significant influence over, an investee prepares separate financial statements, the parent or investor shall identify the financial statements prepared in accordance with IFRS 10, IFRS 11 or IAS 28 (as amended in 2011) to which they relate. The parent or investor shall also disclose in its separate financial statements:







(a)



the fact that the statements are separate financial statements and the reasons why those statements are prepared if not required by law.











(b)



a list of significant investments in subsidiaries, joint ventures and associates, including:







(i)



the name of those investees.











(ii)



the principal place of business (and country of incorporation, if different) of those investees.











(iii)



its proportion of the ownership interest (and its proportion of the voting rights, if different) held in those investees.















(c)



a description of the method used to account for the investments listed under (b).






The parent or investor shall also identify the financial statements prepared in accordance with IFRS 10, IFRS 11 or IAS 28 (as amended in 2011) to which they relate.





EFFECTIVE DATE AND TRANSITION








18


An entity shall apply this Standard for annual periods beginning on or after 1 January 2013. Earlier application is permitted. If an entity applies this Standard earlier, it shall disclose that fact and apply IFRS 10, IFRS 11, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 (as amended in 2011) at the same time.





References to IFRS 9









19


If an entity applies this Standard but does not yet apply IFRS 9, any reference to IFRS 9 shall be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement.




WITHDRAWAL OF IAS 27 (2008)








20


This Standard is issued concurrently with IFRS 10. Together, the two IFRSs supersede IAS 27 Consolidated and Separate Financial Statements (as amended in 2008).





INTERNATIONAL ACCOUNTING STANDARD 28



Investments in Associates and Joint Ventures


OBJECTIVE









1




The objective of this Standard is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.





SCOPE









2




This Standard shall be applied by all entities that are investors with joint control of, or significant influence over, an investee.





DEFINITIONS









3




The following terms are used in this Standard with the meanings specified:







 



An associate is an entity over which the investor has significant influence.











 




Consolidated financial statements are the financial statements of a group in which assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.











 



The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income.











 



A joint arrangement is an arrangement of which two or more parties have joint control.











 




Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.











 



A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.











 



A joint venturer is a party to a joint venture that has joint control of that joint venture.











 




Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.

















4


The following terms are defined in paragraph 4 of IAS 27 Separate Financial Statements and in Appendix A of IFRS 10 Consolidated Financial Statements and are used in this Standard with the meanings specified in the IFRSs in which they are defined:






—


control of an investee










—


group










—


parent










—


separate financial statements










—


subsidiary.








SIGNIFICANT INFLUENCE








5


If an entity holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or indirectly (eg through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence.












6


The existence of significant influence by an entity is usually evidenced in one or more of the following ways:






(a)


representation on the board of directors or equivalent governing body of the investee;










(b)


participation in policy-making processes, including participation in decisions about dividends or other distributions;










(c)


material transactions between the entity and its investee;










(d)


interchange of managerial personnel; or










(e)


provision of essential technical information.
















7


An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the entity additional voting power or to reduce another party’s voting power over the financial and operating policies of another entity (ie potential voting rights). The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities, are considered when assessing whether an entity has significant influence. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event.












8


In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential rights, except the intentions of management and the financial ability to exercise or convert those potential rights.












9


An entity loses significant influence over an investee when it loses the power to participate in the financial and operating policy decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels. It could occur, for example, when an associate becomes subject to the control of a government, court, administrator or regulator. It could also occur as a result of a contractual arrangement.




EQUITY METHOD








10


Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The investor’s share of the investee’s profit or loss is recognised in the investor’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investor’s proportionate interest in the investee arising from changes in the investee’s other comprehensive income. Such changes include those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences. The investor’s share of those changes is recognised in the investor’s other comprehensive income (see IAS 1 Presentation of Financial Statements).












11


The recognition of income on the basis of distributions received may not be an adequate measure of the income earned by an investor on an investment in an associate or a joint venture because the distributions received may bear little relation to the performance of the associate or joint venture. Because the investor has joint control of, or significant influence over, the investee, the investor has an interest in the associate’s or joint venture’s performance and, as a result, the return on its investment. The investor accounts for this interest by extending the scope of its financial statements to include its share of the profit or loss of such an investee. As a result, application of the equity method provides more informative reporting of the investor’s net assets and profit or loss.












12


When potential voting rights or other derivatives containing potential voting rights exist, an entity’s interest in an associate or a joint venture is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivative instruments, unless paragraph 13 applies.












13


In some circumstances, an entity has, in substance, an existing ownership as a result of a transaction that currently gives it access to the returns associated with an ownership interest. In such circumstances, the proportion allocated to the entity is determined by taking into account the eventual exercise of those potential voting rights and other derivative instruments that currently give the entity access to the returns.












14


IFRS 9 Financial Instruments does not apply to interests in associates and joint ventures that are accounted for using the equity method. When instruments containing potential voting rights in substance currently give access to the returns associated with an ownership interest in an associate or a joint venture, the instruments are not subject to IFRS 9. In all other cases, instruments containing potential voting rights in an associate or a joint venture are accounted for in accordance with IFRS 9.












15


Unless an investment, or a portion of an investment, in an associate or a joint venture is classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the investment, or any retained interest in the investment not classified as held for sale, shall be classified as a non-current asset.




APPLICATION OF THE EQUITY METHOD








16


An entity with joint control of, or significant influence over, an investee shall account for its investment in an associate or a joint venture using the equity method except when that investment qualifies for exemption in accordance with paragraphs 17–19.





Exemptions from applying the equity method









17


An entity need not apply the equity method to its investment in an associate or a joint venture if the entity is a parent that is exempt from preparing consolidated financial statements by the scope exception in paragraph 4(a) of IFRS 10 or if all the following apply:






(a)


The entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the entity not applying the equity method.










(b)


The entity’s debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets).










(c)


The entity did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation, for the purpose of issuing any class of instruments in a public market.










(d)


The ultimate or any intermediate parent of the entity produces consolidated financial statements available for public use that comply with IFRSs.
















18


When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure investments in those associates and joint ventures at fair value through profit or loss in accordance with IFRS 9.












19


When an entity has an investment in an associate, a portion of which is held indirectly through a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that portion of the investment in the associate at fair value through profit or loss in accordance with IFRS 9 regardless of whether the venture capital organisation, or the mutual fund, unit trust and similar entities including investment-linked insurance funds, has significant influence over that portion of the investment. If the entity makes that election, the entity shall apply the equity method to any remaining portion of its investment in an associate that is not held through a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds.





Classification as held for sale









20


An entity shall apply IFRS 5 to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale shall be accounted for using the equity method until disposal of the portion that is classified as held for sale takes place. After the disposal takes place, an entity shall account for any retained interest in the associate or joint venture in accordance with IFRS 9 unless the retained interest continues to be an associate or a joint venture, in which case the entity uses the equity method.












21


When an investment, or a portion of an investment, in an associate or a joint venture previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using the equity method retrospectively as from the date of its classification as held for sale. Financial statements for the periods since classification as held for sale shall be amended accordingly.





Discontinuing the use of the equity method










22




An entity shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture as follows:







(a)



If the investment becomes a subsidiary, the entity shall account for its investment in accordance with IFRS 3 Business Combinations and IFRS 10.











(b)



If the retained interest in the former associate or joint venture is a financial asset, the entity shall measure the retained interest at fair value. The fair value of the retained interest shall be regarded as its fair value on initial recognition as a financial asset in accordance with IFRS 9. The entity shall recognise in profit or loss any difference between:







(i)



the fair value of any retained interest and any proceeds from disposing of a part interest in the associate or joint venture; and











(ii)



the carrying amount of the investment at the date the equity method was discontinued.















(c)



When an entity discontinues the use of the equity method, the entity shall account for all amounts previously recognised in other comprehensive income in relation to that investment on the same basis as would have been required if the investee had directly disposed of the related assets or liabilities.

















23


Therefore, if a gain or loss previously recognised in other comprehensive income by the investee would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. For example, if an associate or a joint venture has cumulative exchange differences relating to a foreign operation and the entity discontinues the use of the equity method, the entity shall reclassify to profit or loss the gain or loss that had previously been recognised in other comprehensive income in relation to the foreign operation.













24




If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the entity continues to apply the equity method and does not remeasure the retained interest.






Changes in ownership interest









25


If an entity’s ownership interest in an associate or a joint venture is reduced, but the entity continues to apply the equity method, the entity shall reclassify to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be required to be reclassified to profit or loss on the disposal of the related assets or liabilities.





Equity method procedures









26


Many of the procedures that are appropriate for the application of the equity method are similar to the consolidation procedures described in IFRS 10. Furthermore, the concepts underlying the procedures used in accounting for the acquisition of a subsidiary are also adopted in accounting for the acquisition of an investment in an associate or a joint venture.












27


A group’s share in an associate or a joint venture is the aggregate of the holdings in that associate or joint venture by the parent and its subsidiaries. The holdings of the group’s other associates or joint ventures are ignored for this purpose. When an associate or a joint venture has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income and net assets taken into account in applying the equity method are those recognised in the associate’s or joint venture’s financial statements (including the associate’s or joint venture’s share of the profit or loss, other comprehensive income and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting policies (see paragraphs 35 and 36).












28


Gains and losses resulting from ‘upstream’ and ‘downstream’ transactions between an entity (including its consolidated subsidiaries) and its associate or joint venture are recognised in the entity’s financial statements only to the extent of unrelated investors’ interests in the associate or joint venture. ‘Upstream’ transactions are, for example, sales of assets from an associate or a joint venture to the investor. ‘Downstream’ transactions are, for example, sales or contributions of assets from the investor to its associate or its joint venture. The investor’s share in the associate’s or joint venture’s gains or losses resulting from these transactions is eliminated.












29


When downstream transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed, or of an impairment loss of those assets, those losses shall be recognised in full by the investor. When upstream transactions provide evidence of a reduction in the net realisable value of the assets to be purchased or of an impairment loss of those assets, the investor shall recognise its share in those losses.












30


The contribution of a non-monetary asset to an associate or a joint venture in exchange for an equity interest in the associate or joint venture shall be accounted for in accordance with paragraph 28, except when the contribution lacks commercial substance, as that term is described in IAS 16 Property, Plant and Equipment. If such a contribution lacks commercial substance, the gain or loss is regarded as unrealised and is not recognised unless paragraph 31 also applies. Such unrealised gains and losses shall be eliminated against the investment accounted for using the equity method and shall not be presented as deferred gains or losses in the entity’s consolidated statement of financial position or in the entity’s statement of financial position in which investments are accounted for using the equity method.












31


If, in addition to receiving an equity interest in an associate or a joint venture, an entity receives monetary or non-monetary assets, the entity recognises in full in profit or loss the portion of the gain or loss on the non-monetary contribution relating to the monetary or non-monetary assets received.












32


An investment is accounted for using the equity method from the date on which it becomes an associate or a joint venture. On acquisition of the investment, any difference between the cost of the investment and the entity’s share of the net fair value of the investee’s identifiable assets and liabilities is accounted for as follows:






(a)


Goodwill relating to an associate or a joint venture is included in the carrying amount of the investment. Amortisation of that goodwill is not permitted.










(b)


Any excess of the entity’s share of the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment is included as income in the determination of the entity’s share of the associate or joint venture’s profit or loss in the period in which the investment is acquired.




Appropriate adjustments to the entity’s share of the associate’s or joint venture’s profit or loss after acquisition are made in order to account, for example, for depreciation of the depreciable assets based on their fair values at the acquisition date. Similarly, appropriate adjustments to the entity’s share of the associate’s or joint venture’s profit or loss after acquisition are made for impairment losses such as for goodwill or property, plant and equipment.













33




The most recent available financial statements of the associate or joint venture are used by the entity in applying the equity method. When the end of the reporting period of the entity is different from that of the associate or joint venture, the associate or joint venture prepares, for the use of the entity, financial statements as of the same date as the financial statements of the entity unless it is impracticable to do so.














34




When, in accordance with paragraph 33, the financial statements of an associate or a joint venture used in applying the equity method are prepared as of a date different from that used by the entity, adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the entity’s financial statements. In any case, the difference between the end of the reporting period of the associate or joint venture and that of the entity shall be no more than three months. The length of the reporting periods and any difference between the ends of the reporting periods shall be the same from period to period.














35




The entity’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances.













36


If an associate or a joint venture uses accounting policies other than those of the entity for like transactions and events in similar circumstances, adjustments shall be made to make the associate’s or joint venture’s accounting policies conform to those of the entity when the associate’s or joint venture’s financial statements are used by the entity in applying the equity method.












37


If an associate or a joint venture has outstanding cumulative preference shares that are held by parties other than the entity and are classified as equity, the entity computes its share of profit or loss after adjusting for the dividends on such shares, whether or not the dividends have been declared.












38


If an entity’s share of losses of an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the entity discontinues recognising its share of further losses. The interest in an associate or a joint venture is the carrying amount of the investment in the associate or joint venture determined using the equity method together with any long-term interests that, in substance, form part of the entity’s net investment in the associate or joint venture. For example, an item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, an extension of the entity’s investment in that associate or joint venture. Such items may include preference shares and long-term receivables or loans, but do not include trade receivables, trade payables or any long-term receivables for which adequate collateral exists, such as secured loans. Losses recognised using the equity method in excess of the entity’s investment in ordinary shares are applied to the other components of the entity’s interest in an associate or a joint venture in the reverse order of their seniority (ie priority in liquidation).












39


After the entity’s interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to the extent that the entity has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, the entity resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.





Impairment losses









40


After application of the equity method, including recognising the associate’s or joint venture’s losses in accordance with paragraph 38, the entity applies IAS 39 Financial Instruments: Recognition and Measurement to determine whether it is necessary to recognise any additional impairment loss with respect to its net investment in the associate or joint venture.












41


The entity also applies IAS 39 to determine whether any additional impairment loss is recognised with respect to its interest in the associate or joint venture that does not constitute part of the net investment and the amount of that impairment loss.












42


Because goodwill that forms part of the carrying amount of an investment in an associate or a joint venture is not separately recognised, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in IAS 36 Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever application of IAS 39 indicates that the investment may be impaired. An impairment loss recognised in those circumstances is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment in the associate or joint venture. Accordingly, any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. In determining the value in use of the investment, an entity estimates:






(a)


its share of the present value of the estimated future cash flows expected to be generated by the associate or joint venture, including the cash flows from the operations of the associate or joint venture and the proceeds from the ultimate disposal of the investment; or










(b)


the present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal.




Using appropriate assumptions, both methods give the same result.












43


The recoverable amount of an investment in an associate or a joint venture shall be assessed for each associate or joint venture, unless the associate or joint venture does not generate cash inflows from continuing use that are largely independent of those from other assets of the entity.




SEPARATE FINANCIAL STATEMENTS








44


An investment in an associate or a joint venture shall be accounted for in the entity’s separate financial statements in accordance with paragraph 10 of IAS 27 (as amended in 2011).




EFFECTIVE DATE AND TRANSITION








45


An entity shall apply this Standard for annual periods beginning on or after 1 January 2013. Earlier application is permitted. If an entity applies this Standard earlier, it shall disclose that fact and apply IFRS 10, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 (as amended in 2011) at the same time.





References to IFRS 9









46


If an entity applies this Standard but does not yet apply IFRS 9, any reference to IFRS 9 shall be read as a reference to IAS 39.




WITHDRAWAL OF IAS 28 (2003)








47


This Standard supersedes IAS 28 Investments in Associates (as revised in 2003).