SEMINAR ON PHILIPPINE
PUBLIC SECTOR ACCOUNTING
STANDARDS
PPSAS 38
September 18, 2019
PPSAS 38 — Disclosure of
Interests in Other Entities
IPSAS 38
PPSAS 38
SESSION OVERVIEW
Definition of Terms
Objective and Scope of
PPSAS 38
Required Disclosures
Relevant Exercises
LEARNING OBJECTIVE
At the end of the session, the
participants will be able to:
identify the required disclosures
that a GC must make on its financial
statements relating to its interests
in other entities.
BACKGROUND
PPSAS 6
Consolidated
and Separate
FS
PPSAS 7
Investments
in Associates
Disclosures
Disclosures
Controlling
interests
acquired with
the intention of
disposal
PPSAS 8
Investments
in Joint
Ventures
Disclosures
PPSAS 38
Structured
entities that
are not
consolidated
DEFINED TERMS
is an additional information attached to an
entity's
financial
statements,
usually
as
explanation for activities which have significantly
influenced the entity's financial results.
DEFINED TERMS
(par. 7 of PPSAS 38)
Interest in another entity
refers to involvement by way of binding
arrangements or otherwise that exposes an entity
to variability of benefits from the performance of
the other entity
DEFINED TERMS
(par. 7 of PPSAS 38)
Interest in another entity
can be evidenced by:
the holding of equity or debt instruments;
provision of funding;
liquidity support
credit enhancement & guarantees
Interest in another entity
SIGNIFICANT
INFLUENCE
JOINT CONTROL
OR
OR
OVER
ANOTHER
ENTITY
DEFINED TERMS
(par. 7 of PPSAS 38)
Binding arrangement
is an arrangement that confers
enforceable rights and obligations
on the parties to it as if it were in
the form of a contract. It includes
rights from contracts or other legal
rights.
DEFINED TERMS
(par. 7 and AG 20 of
PPSAS 38)
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 the administrative tasks
only and the relevant activities
are directed by means of
contractual arrangements.
DEFINED TERMS
(par. 7 of PPSAS 38)
Revenue from a structured entity
includes, but is not limited to:
recurring and non-recurring fees;
interest;
dividends or similar distributions;
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
OBJECTIVE OF PPSAS 38
To require disclosure of information that
enables users of financial statements to
evaluate:
1
NATURE
2
RISKS ASSOCIATED
3
EFFECTS TO FS
INTERESTS IN
OTHER ENTITIES
SCOPE
PPSAS 38 shall be applied by an entity that has an
interests in:
 Controlled entities
 Joint Arrangements (Joint Operations or Joint
Venture)
 Associates
 Unconsolidated structured entities
SCOPE (Cont’d)
PPSAS 38 DOES NOT APPLY TO:
a. post-employment benefit
plans or other long-term
employee benefit plans to
which PPSAS 39,
Employee Benefits,
applies
SCOPE (Cont’d)
PPSAS 38 DOES NOT APPLY TO:
b. an entity’s separate FS to which PPSAS 34, Separate
Financial Statements, applies
EXCEPTIONS: (PPSAS 38 will still apply)
1.
Separate
FS only!
If a GC has interests in unconsolidated structured
entities and prepares separate FS as its only FS,
pars. 40-48 of the Standard will apply.
GC
has interests in
Unconsolidated Structured Entities
SCOPE (Cont’d)
EXCEPTIONS: (cont’d)
2.
An investment entity that prepares FS in which all of
its controlled entities are measured at fair value
through surplus or deficit
SCOPE (Cont’d)
PPSAS 38 DOES NOT APPLY TO:
c. An interest held by a GC that participates in, but
does not have joint control of, a joint
arrangement
unless that interest: (PPSAS 38 will
still apply)
results in significant influence
over the arrangement
an interest in a structured entity
SCOPE (cont’d)
PPSAS 38 DOES NOT APPLY TO:
d. An interest in another entity accounted for in
accordance with PPSAS 29, Financial Instruments:
Recognition and Measurement.
however, PPSAS 38 shall still
apply when:
it is an interest in an associate
or a joint venture; and
it is an interest in an
unconsolidated structured
entity.
WHAT TO
DISCLOSE?
DISCLOSURES
a. Significant judgments
made in determining:
and
assumptions
• the nature of its interest in another
entity or arrangement;
• the type of joint arrangement in
which it has an interest; and
• that it meets the definition of an
investment entity, if applicable
DISCLOSURES (Cont’d)
b. Information about its interests in
Controlled
entities
Joint
arrangements
and associates;
Non - quantifiable
ownership interests; and
Structured
entities that are
not
consolidated;
Controlling interests
acquired with the intention
of disposal
CONTROLLED ENTITIES
Significant Accounting Policies
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group and its investees that are considered
subsidiaries as at 31 December 2015. Subsidiaries are investees that
the Group has control over. Control is achieved when the Group 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. Specifically, the Group controls an investee
if, and only if, the Group has:



Power over the investee (i.e., existing rights that give it the
current ability to direct the relevant activities of the investee);
Exposure, or rights, to variable returns from its involvement
with the investee; and
The ability to use its power over the investee to affect its
returns
(pg. 22, Good Insurance (International) Limited, http://ey.com, EYGM Limited)
JOINT ARRANGEMENTS AND ASSOCIATES
Summary of Significant Accounting Policies
Interest in joint venture
The Economic entity has an interest in a joint venture which is a jointly
controlled entity, whereby the venturers have a binding arrangement that
establishes joint control over the economic activities of the entity. The
Economic entity recognizes its interest in the joint venture using the
proportionate consolidation method. The Economic entity combines its
proportionate share of each of the assets, liabilities, income and
expenses of the joint venture with similar items, line by line, in its
consolidated financial statements. The financial statements of the joint
venture are prepared for the same reporting period as the Economic
entity. Adjustments are made where necessary to bring the accounting
policies in line with those of the Economic entity.
(pg. 14, Model Public Sector Economic entity, http://ey.com, EYGM Limited)
UNCONSOLIDATED STRUCTURED ENTITIES
Structured Entities Sponsored Where No Interest Exists at the
Reporting Date
“XYZ Bank considers itself the sponsor of a structured entity where
it is primarily involved in the design and establishment of the
structured entity. XYZ Bank also transfers assets to the sponsored
structured entity, it markets products associated with the structured
entity in its own name, and/or provides guarantees regarding the
structured entity’s performance.
For some sponsored structured entities, XYZ Bank has no interest
at the reporting date. However, it has sold assets to those entities
with no continuing involvement during the reporting period and has
earned fees for selling those assets and for other transactions
carried out for the entities. The table below presents XYZ Bank’s
income recognized during the reporting period and the fair value of
any assets transferred to those structured entities during the
reporting period.”
(pg. 14, IFRS 12 – Example disclosures for interests in unconsolidated structured entities, http://ey.com, EYGM Limited)
Exercise
INSTRUCTION:
Fill in the blanks to complete the full text of
the required disclosures of PPSAS 38.
Choose from the word bank.
You are given 5 minutes to answer.
Remember
Where the disclosures required by
PPSAS 38 and other PPSASs do not
meet the objective, an entity is
required to disclose whatever
additional information is necessary to
meet the objective.
EFFECTIVITY
PPSAS 38 shall be applied by all GCs
for annual financial statements covering
periods beginning on or after January 1,
2017. Earlier application is encouraged.
Thank you!