AASB 10 Consolidated Financial
Statements
AASB 11 Joint Arrangements
AASB 12 Disclosure of Interests in
Other Entities
Office of
Local Government
Laura Love
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OFFICE OF
LOCAL
GOVERNMENT
Interaction of accounting standards
Yes
Control
in own
right?
No
Consolidate in
accordance with AASB
10
AASB 12 disclosures
Joint
control?
Yes – determine
type of joint
arrangement
No
Joint Operation
Account for share of
assets, liabilities,
income and expenses –
AASB 11
AASB 12 disclosures
Joint Venture /
Associates
Equity accounting in
accordance with AASB
128
AASB 12 disclosures
Significant
influence?
Yes
No
Treat as investment in
accordance with AASB
139 / AASB 9
AASB 7 and AASB 13
disclosures
OFFICE OF
LOCAL
GOVERNMENT
AASB 10 – 12 for notfor-profit entites
• Not-for-profit effective date is 1 January 2014
• Guidance to assist NFP in implementing AASB 10 and 12
has been released in AASB 2013-8 Amendments to
Australian Accounting Standards – Australian
Implementation Guidance for Not-for-Profit Entities –
Control and Structured Entities
• This guidance will not change requirements
• Provides help in interpreting terms which are ‘for-profit’ orientated.
• Appendix to AASB 10 to be read in conjunction with AASB 10,
it is not a stand-alone document
OFFICE OF
LOCAL
GOVERNMENT
AASB 10 Consolidated financial statements
• An entity that is a parent shall present
consolidated financial statements
• A parent is an entity that controls one or more
entities
• A subsidiary is an entity that is controlled by
another entity (i.e. the parent)
• A group is a parent and its subsidiaries.
• Single control-based consolidation model
for all types of entities which aims to reflect
the economic substance of the relationship
between a reporting entity and an investee.
OFFICE OF
LOCAL
GOVERNMENT
What is control?
An entity controls another if:
“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.”
Exposure
to variable
returns
Ability to
affect
returns
Power
Control
OFFICE OF
LOCAL
GOVERNMENT
Key concepts for
NFP’s
• An investor and an investee are merely entities that have a relationship
in which control of one entity (investee) by the other (investor) might
arise.
• Investor need not have a financial interest.
OFFICE OF
LOCAL
GOVERNMENT
What is power?
• Existing rights that give the current ability to
direct the relevant activities of the investee.
• Need to have current ability - i.e. able to make
decisions at the time the decisions need to be
made – substantive rights.
Power
Rights
• What are the rights of the investor?
•
•
•
•
Voting rights
Potential voting rights
Other contractual arrangements
A combination thereof
• What are the relevant activities?
• Do the rights give the investor the ability to
direct the relevant activities?
OFFICE OF
LOCAL
GOVERNMENT
Relevant
activities
Power
• Rights which indicate power often arise from contractual or statutory
agreements in place (e.g. rights from administrative arrangement or
statutory provisions).
• Other rights:
• rights to give policy directions to the governing body of an investee that
give the holder the ability to direct the relevant activities of the investee;
and
• rights to approve or veto operating and capital budgets relating to the
relevant activities of an investee.
OFFICE OF
LOCAL
GOVERNMENT
Rights – substantive v protective
• Substantive – practical ability to exercise right.
• Protective rights apply only in exceptional circumstances or where
there are fundamental changes in the activities of an investee
E.g.
• Right of a regulator to curtail or close operations of a non-compliant
entity;
• Right to remove members of the governing body of another entity in
certain circumstances, e.g. councillors of a local government
• Right to remove tax deductibility to a not-for-profit entity.
• Protective rights alone do not give power.
OFFICE OF
LOCAL
GOVERNMENT
Rights
• Political, cultural, social or similar types of barriers might make it
difficult for the investor to exercise rights in relation to investee – this
would not prevent rights from being substantive
E.g.
• power to appoint and remove members of railway authority without cause
– reluctance to do this due to sensitivity in the electorate.
OFFICE OF
LOCAL
GOVERNMENT
Variable returns
• Broad definition of returns:
•
•
•
•
•
Dividends
Remuneration from services
Fees and exposure to losses
Residual interests on liquidation
Returns not available to other
investors
• Variable returns – potential to
vary as a result of the
investee’s performance
• Multiple parties can be exposed
to variable returns.
OFFICE OF
LOCAL
GOVERNMENT
Returns
Exposure (or
rights) to
variable returns
of the investee
Returns – NFP considerations
• Nature of returns includes financial, non-financial, direct and indirect
benefits, whether positive or negative, including the achievement of
furtherance of the investor’s objectives.
• For example:
• The provision of goods and services by the investee to its beneficiaries
may affect the extent to which the investors social policy objectives are
furthered.
OFFICE OF
LOCAL
GOVERNMENT
Ability to affect returns
of the investee
• Investor has the ability to
use its power to affect
investor’s returns from its
involvement with the
investee.
• Control – power that could
be used to benefit the
investor.
OFFICE OF
LOCAL
GOVERNMENT
Interaction
between power
and variable
returns
Example
Entity F
41% interest
Appoints 5
directors
17 other
investors
59% voting
interest
Appoint 7
directors
OFFICE OF
LOCAL
GOVERNMENT
Entity
E
Entity E manufactures
widgets:
• 95% of output is
sold to Entity F,
• 5% sold to external
parties
Entity E was
established to allow
Entity F a source of
widgets.
The 17 investors have
interests as follows:
(14%, 8%, 7%, 6%,
5%, 4% plus others
have less than 3%).
Agent v principal
• Agency relationship - a principal contracts another
party to perform specified services on behalf of the
principal that involves delegating some authority to the
agent
• Delegated power does not mean control -many agent
contracts provide power not control - judgement
• Agent:
• Acts in the best interest of the principal (fiduciary
responsibility)
• Additional measures to ensure the agent does not act against
the interests of the principal
OFFICE OF
LOCAL
GOVERNMENT
Agent v principal assessment:
• Consider:
• Rights held by other parties (i.e. kick out rights held
by single party?)
• Scope of the decision-making authority
• Remuneration of the decision-maker (magnitude and
variability)
• Other interests that the decision-maker holds in the
investee
• Different weightings to factors but … ‘kick-out’
rights is conclusive.
OFFICE OF
LOCAL
GOVERNMENT
17
Transitional
arrangements
• No adjustments for entities previously:
• Consolidated which continue to be consolidated
• Not consolidated which continue to be not consolidated.
• Retrospective application for:
• Entities which require consolidating for the first time under AASB 10
• Entities which require de-consolidating under AASB 10.
OFFICE OF
LOCAL
GOVERNMENT
AASB 11:
JOINT ARRANGEMENTS
OFFICE OF
LOCAL
GOVERNMENT
What is a joint
arrangement?
Joint arrangement – an arrangement of which
two or more parties have joint control.
A joint arrangement has the following characteristics:
a. The parties are bound by a contractual arrangement
b. The contractual arrangement gives two or more of those parties
joint control of the arrangement
AASB 11 principle – all parties should recognise their rights and
obligations arising from the arrangement.
OFFICE OF
LOCAL
GOVERNMENT
Classifying joint
arrangements
OFFICE OF
LOCAL
GOVERNMENT
Joint
operation
Rights to certain
assets and
obligations for
certain liabilities
Account for
share of assets
and liabilities
Joint
venture
Rights to net
assets of an
arrangement
Parties account
for investment
using equity
method
Classification - summary
Separate vehicle
for the
arrangement?
Yes
No
Joint operation
Consider the venturer’s rights and
obligations
- legal form
- terms of the contractual arrangement
- other facts and circumstances
Rights to net
assets
Rights to assets
and obligations for
liabilities
OFFICE OF
LOCAL
GOVERNMENT
Joint venture
AASB 11 points to
consider
• Transitional provisions where classification or accounting
for joint arrangements has changed is complex.
• Proportionate consolidation to the equity method (joint ventures)
• Equity method to accounting for assets and liabilities (joint
operations)
• AASB 11 has supporting illustrative examples to consider
the judgements required by the standard
• Don’t assume that a ‘joint venture’ will continue to be a
‘joint venture’
OFFICE OF
LOCAL
GOVERNMENT
AASB 12: DISCLOSURES OF
INTERESTS IN OTHER ENTITIES
OFFICE OF
LOCAL
GOVERNMENT
Scope of AASB 12
Applicable to an entity with an interest in any of the following:
Subsidiaries
Joint
arrangements
Associates
Unconsolidated
structured
entities
• Disclosure only standard
• Require an entity to disclose information to evaluate:
a. Nature of, and risks associated with, its interests in other entities
b. Effects of those interests on its financial position, financial
performance and cash flows.
OFFICE OF
LOCAL
GOVERNMENT
Four broad categories of disclosure:
• Information about:
• Significant judgements and assumptions a company has made in
deciding whether it has control, joint control or significant influence over
another entity
• An entity’s interest in subsidiaries
• An entity’s interest in joint arrangements and associates
• The nature, extent and risks relating to an entity’s interests in
unconsolidated structured entities.
OFFICE OF
LOCAL
GOVERNMENT
Accounting policies
The following accounting policies have been revised:
• Principles of Consolidation
• Subsidiaries
• Joint Arrangements
• Joint operations
• Joint ventures
• Associates
•
Business Combinations
• Delete policy if Council doesn’t have a particular investment.
OFFICE OF
LOCAL
GOVERNMENT
Significant judgements and
assumptions
Significant judgements and assumptions an entity has
made in determining:
• That is has control of another entity
• That is has joint control of an arrangement or significant influence
over another entity
• Basis for decision of joint arrangement classification (i.e. joint
operations or joint venture) when arrangement has been structured
through a separate vehicle
• Councils to include information about specific judgements, estimates
and assumptions made.
OFFICE OF
LOCAL
GOVERNMENT
Interests in subsidiaries
Disclosures to allow users to understand and evaluate:
• Composition of the group
• The interest that non-controlling interests have in the group’s
activities and cash flows;
• The nature and extent of significant restrictions on its ability to
access or use assets, and settle liabilities, of the group;
• The nature of, and changes in, the risks associated with its
interests in consolidated structured entities;
• The consequences of changes in its ownership interest in a
subsidiary that do not result in loss of control;
• The consequences of losing control of a subsidiary during the
reporting period.
OFFICE OF
LOCAL
GOVERNMENT
Subsidiaries that have material non-controlling
interests
• For all subsidiaries that have NCI that is material to the reporting entity:
•
•
•
•
•
•
OFFICE OF
LOCAL
GOVERNMENT
Name of each subsidiary
Principal place of business
Proportion of ownership / voting rights held by NCI
Profit or loss allocated to NCI
Accumulated NCI at the end of the reporting period
Summarised financial information.
Interests in Subsidiaries
(a)
Composition of the Group
Principal place of business
/ Country of Incorporation
Subsidiaries:
Sub 1
Sub 2
Percentage
Owned (%)*
Percentage
Owned (%)*
2015
2014
Australia
Australia
The percentage ownership interest held is equivalent to the percentage voting rights for all
subsidiaries
Controlled entities with ownership interest of 50% or less
The Council holds 42% of the ordinary shares of Goreng Ltd. Under a management agreement
between Council, Goreng and the other shareholder, Council is required to make all the financial and
operating policy decisions of Goreng and to ensure that those policies are consistent with the policies
of the Group and therefore has control.
OFFICE OF
LOCAL
GOVERNMENT
(b) Significant restrictions relating to subsidiaries
[Provide details of significant restrictions, for example statutory, contractual and regulatory restrictions,
on the subsidiary’s ability to access or use the assets and settle the liabilities of the group, i.e.:
•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.
•Guarantees or other requirements that may restrict dividends and other capital distributions being
paid, or loans and advance being made or repaid to (or from) other entities within the Group.]
Interests in subsidiaries continued
(c) Subsidiaries with material non-controlling interests
The amounts disclosed below are prior to any inter-company eliminations.
Name of subsidiary
Reporting period
% ownership held by NCI
Profit / (loss) allocated to NCI
Accumulated NCI of subsidiary
Dividends paid to NCI
Summarised statement of financial position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Summarised statement of profit and loss and other comprehensive income
Revenue
Profit / (loss)
Total comprehensive income
OFFICE OF
LOCAL
GOVERNMENT
Summarised statement of cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase / (decrease) in cash and cash equivalents
2015
Sub 1
2014
2015
Sub 2
2014
Interests in Subsidiaries continued
Consolidated structured entities
[where Council has consolidated structured entities, provide details of circumstances where Council or an entity within the
group may be required to be financial support to that consolidated structured entity and details where support has been
provided during the financial reporting period.]
Consequences of changes in a Council’s ownership interest in a subsidiary that do not result in a loss of control
Disposal of ownership interest
During the year, the Group disposed of xx% of its investment in [Name of subsidiary], control was maintained and
therefore the Group structure did not change, although the non-controlling interest increased.
This effect of this transaction on the equity attributable to the Council is shown below:
Note: the increase / decrease to Council interest is recorded in the Transactions with Non-controlling Interest reserve.
[year end date] $
Consideration received
Less: Increase in net assets attributable to
NCI
Increase / (decrease) in Council interest
Acquisition of ownership interest
During the year, the Group acquired xx% additional interest in [Name of subsidiary], control was maintained and therefore
the Group structure did not change, although the non-controlling interest decreased.
This effect of this transaction on the Council interest is shown below:
Note: the increase / decrease to Council interest is recorded in the Transactions with Non-controlling Interest reserve.
[year end date] $
NCI interest acquired
Less: Consideration paid
OFFICE OF
LOCAL
GOVERNMENT
Increase / (decrease) in Council interest
Interests in joint arrangements and associates
• Disclose information that enables users of its financial
statements to evaluate:
• Nature, extent and financial effects of its interests in joint arrangements
and associates, including details of its contractual relationships with
other investors
• Nature of, and changes in, the risks associated with its interests in joint
ventures and associates
• Summarised financial information for each individually material joint
venture and in total for all other joint ventures.
OFFICE OF
LOCAL
GOVERNMENT
Interests in Joint Arrangements (and
Associates)
Type of joint
arrangement
Principal place of business /
Country of Incorporation
Percentage
Owned (%)*
2015
Percentage
Owned (%)*
2014
Joint
arrangements:
Joint
arrangement 1
Joint
arrangement 2
The percentage ownership interest held is equivalent to the percentage voting rights for all joint arrangements.
Joint arrangement 1
Provide details of the nature of the Council’s relationship with the joint arrangement, for example describing the nature of the
activities of the joint arrangement and whether they are strategic to the entity’s activities.
Joint arrangement 2
Provide details of the nature of the Council’s relationship with the joint arrangement, for example describing the nature of the
activities of the joint arrangement and whether they are strategic to the entity’s activities.
OFFICE OF
LOCAL
GOVERNMENT
Joint ventures (and associates) continued
Name of joint venture
Joint ventures
All joint ventures have the same year end as the
Council.
There are no significant restrictions on the ability
of joint ventures to transfer funds to the Group in
the form of cash dividends or to repay loans or
advances made by the Council.
Material joint ventures
The following information is provided for joint
ventures that are material to the Group and is the
amount per the JV financial statements, adjusted
for fair value adjustments at acquisition date and
differences in accounting policies, rather than the
Group’s share.
2015
Measurement basis (equity method / fair value)
Dividends received from the joint venture
Summarised statement of financial position
Cash and cash equivalents
Current assets
Non-current assets
Current financial liabilities (excluding trade and other payables
and provisions)
Current liabilities
Current financial liabilities (excluding trade and other payables
and provisions)
Non-current liabilities
Net assets
Summarised statement of profit and loss and
comprehensive income
Revenue
Interest income
Depreciation and amortisation
Income expense
Income tax expense (income)
Profit / (loss) from continuing operations
Post-tax profit or loss from discontinued operations
Other comprehensive income
Total comprehensive income
OFFICE OF
LOCAL
GOVERNMENT
other
Summarised statement of cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase / (decrease) in cash and cash equivalents
2
0
1
4
20
15
20
14
Joint ventures (and associates) continued
Reconciliation of carrying amount of interest in joint venture to summarised financial information for joint
ventures accounted for using the equity method:
[Name of joint venture]
Group’s share of xx% of net assets
[insert reconciling items]
Carrying amount
Fair value of investment (if there is a
quoted price)
OFFICE OF
LOCAL
GOVERNMENT
Current year end $
Prior year end $
Aggregate information for joint ventures that
are not individually material
The Council has interests in a number of joint ventures none of
which is considered individually material. The table below
summarises, in aggregate, the financial information of all
individually immaterial joint ventures.
Current year end $
Carrying amount of investments in
joint
ventures
that
are
not
individually material
Share of those joint ventures:
Profit or loss from continuing
operations
Post-tax profit or loss
discontinued operations
Other comprehensive income
Total comprehensive income
OFFICE OF
LOCAL
GOVERNMENT
from
Prior year end $
Other joint venture disclosures
Unrecognised share of losses
The unrecognised share of losses of joint ventures due to the Council’s interest being reduced to zero
under the equity methods are $xx for the reporting period and $xx on a cumulative basis.
Risks associated with the interests in joint ventures
Commitments relating to joint ventures held
Contingent liabilities incurred jointly with
other investments over joint ventures held
OFFICE OF
LOCAL
GOVERNMENT
Structured entities
• “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.”
• Common for NFP entities to be established by administrative
arrangements or legislation.
• If administrative arrangements or legislation are the dominant factors in
determining control of such an entity then it is not a structured entity.
OFFICE OF
LOCAL
GOVERNMENT
Example of
structured entities
• Partnership between government and private sector entity –
established and directed by contractual arrangements.
• Community service organisation whose relevant activities directed by
contractual arrangements which were established or are sponsored by
a not-for-profit entity – i.e. responsibility or requirement to provide
financial support.
OFFICE OF
LOCAL
GOVERNMENT
Unconsolidated
structured entities
• Ensure that users of financial statements are able to:
• Understand the nature and extent of an entity’s interests in unconsolidated
structured entities; and
• Evaluate the risks associated with those interests.
• For example, disclose requirement or intention to provide support.
OFFICE OF
LOCAL
GOVERNMENT
Unconsolidated Structured Entities
COMMENTARY – Interests in Unconsolidated structured entities
If the Council has any unconsolidated structured entities such as involvement with a community organisation
then the note below needs to be included
Nature of interests
[Provide details, including but not limited to the nature, purpose, size and activities of the structured entity and
how it is financed.]
Sponsored unconsolidated structured entities
[provide details of how the Council has determined which structured entities it has sponsored].
Structured
entity type
Total income
[income
categories]
OFFICE OF
LOCAL
GOVERNMENT
Assets transferred to structured entities
Carrying amount
Fair value
Unconsolidated Structured Entities
Nature of risks
Carrying amount of assets and liabilities
The following table shows the carrying amounts of the assets and liabilities recognised in the Council financial
statements relating to its interests in unconsolidated structured entities.
Financial
statement line
item
Loans
Investments
Commitments
/ guarantees
Derivative
instruments
Total Assets
Total
Liabilities
Total
Maximum exposure to loss
The maximum exposure to loss shown in the table below is contingent in nature and may arise as a result of
the provision of liquidity facilities and other funding commitments provided by the [entity type] to
unconsolidated structured entities in which it has an interest at [year end date].
[Provide details of how the maximum exposure to loss was determined].
Structured
entity type
Maximum exposure to loss
Loans
OFFICE OF
LOCAL
GOVERNMENT
Investments
Commitments
guarantees
/
Total
Carrying
amount
of
assets / liabilities that
relates to unconsolidated
structured entities
Assets
Liabilities
Unconsolidated Structured Entities
Financial support provided - Without a contractual obligation
[Provide details of financial support which was provided by the Council
without having a contractual obligation to do so – including the type and
amount of support provided (including situations in which the Council
assisted the structured entity in obtaining financial support) and the reasons
for the support].
Current intentions to provide financial or other support
[provide details of any current intentions to provide financial or other support
to an unconsolidated structured entities, including intentions to assist the
structured entity in obtaining financial support].
OFFICE OF
LOCAL
GOVERNMENT
Thoughts on AASB 12…
• AASB 12 disclosures are minimum – consider level of aggregation.
• Council needs to assess whether the disclosures required by AASB 12
and other AASB’s, taken together, provide sufficient information to
evaluate the nature, risks and effects of the Council’s interest in other
entities.
OFFICE OF
LOCAL
GOVERNMENT
Questions
OFFICE OF
LOCAL
GOVERNMENT