Need to Know: IFRS 10 - Consolidated Financial ... - BDO Canada

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38 IFRS 10 Consolidated Financial StatementsExamples of entities that are regarded as structured entities include, but are not limited to:––Securitisation vehicles (a vehicle created to take over various types of contractual debt (e.g. mortgages). The vehiclein exchange issues securities to investors)––Asset-backed financings (A financial security backed by collateral)––Some investment funds.An entity is required to assess whether or not it controls a structured entity based on the principles set out inIFRS 10. These principles may in some cases lead to a changed control assessment compared to the controlassessment under SIC-12.The principle reason why the control assessment might change is the removal of the criterion that was previouslyincluded in SIC-12 that an entity had exposure to a majority of the benefits of an SPE. This eliminates a ‘bright line’that previously resulted in some SPEs not being consolidated.IFRS 12 requires additional disclosures for structured entities regardless of whether an investor is required toconsolidate one or more structured entities. The amount of disclosure differs, with this being more extensive for anentity’s interests in unconsolidated structured entities. However, the general disclosures for consolidated entities alsoapply to consolidated structured entities.Consolidated structured entitiesInvestors in consolidated structured entities are, in addition to the general disclosure requirements of IFRS 12,required to provide information about the nature of their risks associated with their interest in the consolidatedstructured entity.In order to achieve this, investors are required to disclose the terms of any contractual arrangements that couldrequire them (or their subsidiaries) to provide financial support to a consolidated structured entity. This includesevents or circumstances that could expose the reporting entity to a loss (IFRS 12.14).Financial or other support (e.g. purchasing assets of, or instruments issued by the structured entity) may have beenprovided to the consolidated structured entity without the investor having a contractual obligation to do so (e.g. dueto reputational risk). An entity is required to disclose the type and amount of support provided (including situationsin which the parent or its subsidiaries assisted the structured entity in obtaining financial support) and the reasonsfor providing the support (IFRS 12.15). A reporting entity in addition is also required to provide the same informationfor current intentions to provide such support (IFRS 12.17).In the case where a reporting entity concludes that it is required to consolidate a structured entity as a result ofproviding financial support without having a contractual obligation to do so an entity is required to provide anexplanation of the relevant factors it considered to reach that decision (IFRS 12.B16).Unconsolidated structured entitiesThe purpose of disclosures about unconsolidated structured entities is firstly to help users of financial statements tounderstand the nature and extent of an entity’s interests in unconsolidated structured entities. Secondly, disclosuresare required to assist in an evaluation of the nature of, and changes in, the risks associated with the interests inunconsolidated structured entities. Such information is required even when the entity only had a contractualarrangement in the structured entity in previous periods that no longer exists at the reporting date (e.g. it wassponsoring the structured entity) (IFRS 12.24/25).
IFRS 10 Consolidated Financial Statements39Nature of interestsAn entity is required to disclose qualitative and quantitative information about its interests in unconsolidatedstructured entities. This includes, but is not limited to, the following information (IFRS 12.26):––Nature––Purpose––Size––Activities––How the structured entity is financed.An entity is required to classify its sponsoring activities into relevant categories (IFRS 12.28).Nature of riskAn entity is required to disclose in tabular format, unless another format is more appropriate, a summary of(IFRS 12.29):––The carrying amounts of the assets and liabilities recognised in its financial statements relating to its interests inunconsolidated structured entities––The line items in the statement of financial position in which those assets and liabilities are recognised––The amount that best represents the entity’s maximum exposure to loss from its interests in unconsolidatedstructured entities––How the maximum exposure to loss is determined. If an entity cannot quantify its maximum exposure to loss fromits interests in unconsolidated structured entities it is required to disclose that fact and the reasons––A comparison of the carrying amounts of the assets and liabilities of the entity that relate to its interests inunconsolidated structured entities and the entity’s maximum exposure to loss from those entities.If an entity has sponsored an unconsolidated structured entity for which it does not provide information listed in theprevious paragraph (as required by IFRS 12.29) e.g. because it does not have an interest in the entity at the reportingdate, the entity is required to disclose (IFRS 12.27):––How it has determined which structured entities it has sponsored––Income from those structured entities during the reporting period, including a description of the types of incomepresented––The carrying amount (at the time of transfer) of all assets transferred to those structured entities during thereporting period.If during the reporting period an entity has, without having a contractual obligation to do so, provided financial orother support to an unconsolidated structured entity in which it previously had or currently has an interest (e.g.purchasing assets of or instruments issued by the structured entity), the entity is required to disclose:––The type and amount of support provided, including situations in which the entity assisted the structured entity inobtaining financial support––The reasons for providing the support.Disclosure is also required of any current intentions to provide financial or other support, including intentions toassist in obtaining financial support (IFRS 12.31).
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Need to Know: IFRS 10 - Consolidated Financial ... - BDO Canada

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