Consolidation package of Standards: IFRS 12 Disclosure of Interests in Other Entities

On 12 May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities. IFRS 12  resulted mainly from the development of the 'consolidation package' of Standards including IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 Seperate Financial Statements (2011) and IAS 28 Investments in Associates and Joint Ventures. IFRS 10 is effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted so long as IFRS 10, IFRS 11, IAS 27(2011) and IAS 28 (2011) are adopted at the same time.

IFRS 12 provides expanded disclosure requirements relating to entity's interests in subsidiaries, associates and joint arrangements. It moves away from requiring a set of 'boiler-plate' list of disclosures to a more principles based approach. IFRS 12 applies only to the consolidated accounts. Disclosures relating to separate accounts are addressed in the revised IAS 27 Separate Financial Statements.

IFRS 12 also provides a new set of disclosures related to unconsolidated structured entities. The new disclosures should enable users to understand the nature and extend of the entity's interests in unconsolidated structured entities and to evaluate the nature of risks associated with structured entities. IFRS 12 provides a definition of a structured entity. IFRS 12 does not require disclosures for the interests in other unconsolidated entities, which are out of the definition of a structured entity.

The new disclosure requirements for interests in subsidiaries and unconsolidated structured entities were exposed by the IASB in ED 10 Consolidated Financial Statements. For further information (including EFRAG's comment letter to ED 10) please consult the Project Consolidation padcage of standards: IFRS 10.

The amended disclosure for interests in joint arrangements have been exposed by the IASB in the ED 9 Joint Arrangements. For further information (inclucding EFRAG's comment letter to ED 9) please consult the Project Consolidation padcage of standards: IFRS 11.

In autumn 2011, EFRAG in partnership with European National Standard Setters conducted field-tests of the new requirements introduced by IFRS 10, IFRS 11 and the related disclosure in IFRS 12. The feedback report from the field-tests will be published in the due course.

On 9 February 2012, EFRAG issued the Invitation to Comment on its Initial Assessments of: IFRS 10, IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011). EFRAG's initial assessment is that each of the Standards meets the technical criteria to be adopted in the EU. However, EFRAG does not support the effective date of the Standards as being 1 January 2013. EFRAG's reasons are explained in the proposed letter to the European Commission, which accompany EFRAG's Invitation to Comment. Comments were requested by 11 March 2012.

On 30 March 2012, EFRAG issued its Endorsement Advice Letter and Effects Study Report relating to the endorsement of IFRS 12 and has concluded that it meets the requirements of endorsement.   EFRAG has also concluded that the benefits to be derived from implementing IFRS 12 are likely to outweigh the costs involved.

Notwithstanding the positive recommendation that IFRS 12 meets the endorsement criteria, EFRAG does not support the mandatory effective date of 1 January 2013, the field-tests it has conducted provided evidence that some financial institutions would need more time to implement IFRS 10, IFRS 11 and IFRS 12 in a manner that brings reliable financial reporting to capital markets. EFRAG recommends the mandatory effective date of the Standards to be 1 January 2014, with early adoption permitted. Given the interaction between the 5 Standards (consolidation package), EFRAG believes that the mandatory effective date should be the same for all the Standards.

On 29 December 2012 IFRS 12 (together with the related Standards) was published in the official journal.