Extract 13.7: Glencore plc (2017)
Notes to the financial statements [extract]
9. Investments in associates, joint ventures and other investments [extract]
Aggregate information of associates that are not individually material:
US$ million
2017
2016
The Group’s share of income/(loss)
121
(122)
The Group’s share of other comprehensive income
99
–
The Group’s share of total comprehensive income/(loss)
220
(122)
Aggregate carrying value of the Group’s interests
2,651
1,847
5.2
Risks associated with interests in joint ventures and associates
An entity must disclose:
(a) commitments that it has relating to its joint ventures separately from the amount
of other commitments; and
(b) contingent liabilities (as defined in IAS 37) 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 and
associates) separately from the amount of other contingent liabilities.
Disclosure of interests in other entities 913
5.2.1
Disclosure of commitments relating to joint ventures
IAS 24 – Related Party Disclosures – already requires aggregate commitments relating
to joint ventures to be disclosed separately from other commitments. [IAS 24.18-19].
IFRS 12 clarifies that the commitments required to be disclosed under IAS 24 include
an entity’s share of commitments made jointly with other investors with joint control of
a joint venture. Commitments are those that may give rise to a future outflow of cash or
other resources. [IFRS 12.B18].
IFRS 12 provides the following illustrative but not exhaustive examples of the type of
unrecognised commitments that should be disclosed under IAS 24:
(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;
and
(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. [IFRS 12.B19].
There is no requirement to disclose these commitments at individual joint venture
level. However, IAS 24 requires disclosure of information about those transactions
and outstanding balances, including commitments, necessary for users to
understand the potential effect of the relationship on the financial statements.
[IAS 24.18]. This implies that there should be separate disclosure of different types of
significant commitments. IAS 24 does not require the names of any joint ventures
to be disclosed.
914 Chapter
13
5.2.2
Disclosure of contingent liabilities relating to joint ventures and
associates
IFRS 12 requires separate disclosure of contingent liabilities relating to an entity’s
interests in joint ventures and associates from the amount of other contingent liabilities.
IAS 37 defines a contingent liability as an obligation that derives from an entity’s
actions where:
(a) by an established pattern of past practice, published policies or a sufficiently
specific current statement, the entity has indicated to other parties that it will
accept certain responsibilities; and
(b) as a result, the entity has created a valid expectation on the part of those other
parties that it will discharge those responsibilities. [IAS 37.10].
IAS 37 requires disclosure, for each class of contingent liability at the end of a reporting
period, a brief description of the nature of the contingent liability and, where practicable:
(a) an estimate of its financial effect, measured under the requirements of the standard;
(b) an indication of the uncertainties relating to the amount or timing of any outflow; and
(c) the possibility of any reimbursement. [IAS 37.86].
IAS 37 further defines what is intended by ‘class’ and the circumstances in which
aggregation of disclosures of contingent liabilities is appropriate.
Further detail on contingent liabilities is contained at Chapter 27.
6
DISCLOSURE OF INTERESTS IN UNCONSOLIDATED
STRUCTURED ENTITIES
An entity must disclose information that enables users of its financial statements:
(a) to understand the nature and extent of its interests in unconsolidated structured
entities; and
(b) to evaluate the nature of, and changes to, the risks associated with its interests in
unconsolidated structured entities. [IFRS 12.24].
These disclosures are not required by an investment entity for an unconsolidated
structured entity that it controls and for which it presents the disclosures required at 4.6
above. [IFRS 12.25A].
Disclosure requirements in respect of risks associated with interests in consolidated
structured entities are discussed at 4.4 above.
As discussed at 2.2.2.D above, these disclosures also apply to interests in joint ventures
and associates that are also structured entities, in addition to the disclosure required at 5
above for joint ventures and associates.
The information required by (a) and (b) above includes information about an entity’s
exposure to risk from involvement that it had with unconsolidated structured entities in
previous periods (e.g. sponsoring the structured entity) even if the entity no longer has
any contractual involvement with the structured entity at the reporting date. [IFRS 12.25].
Disclosure of interests in other entities 915
It is likely that some of the disclosure requirements for unconsolidated structured
entities will overlap with those of IFRS 7, since many interests in unconsolidated
structured entities will be financial assets within the scope of IFRS 7. However, the IASB
considers that what is different is that the IFRS 12 disclosures describe an entity’s risk
exposures, but IFRS 7 requires disclosures about risks associated with financial
instruments. IFRS 12 adopts a different perspective and requires an entity to disclose its
exposure to risks from its interest in a structured entity. [IFRS 12.BC72].
The IASB believes that information from both perspectives assists users of financial
statements in their analysis of an entity’s exposure to risk – the disclosures in IFRS 7 by
identifying those financial instruments that crea
te risk and the disclosures in IFRS 12 by
providing, when relevant, information about:
• the extent of an entity’s transactions with structured entities;
• concentrations of risk that arise from the nature of the entities with which the
entity has transactions; and
• particular transactions that expose the entity to risk. [IFRS 12.BC73].
The IASB was also persuaded by information received from users of financial
statements in the US who had been using the disclosures required by US GAAP for
variable interest entities in their analysis. According to the IASB, those users confirmed
that the new disclosures provided them with information that was not presently
available to them, but which they regarded as important for a thorough understanding
of an entity’s exposure to risk. Many of those users referred also to the global financial
crisis and emphasised that a better understanding of an entity’s interests in
unconsolidated structured entities might have helped to identify earlier the extent of
risks to which entities were exposed. Accordingly, those users stated that the new risk
disclosures had significantly improved the quality of financial reporting and strongly
encouraged the IASB to require similar disclosures for IFRS preparers. [IFRS 12.BC75-76].
No disclosure is required of ‘significant’ interests in individual unconsolidated structured
entities. The IASB decided against adding this requirement because of the overriding
concept in IFRSs that an entity would be required to disclose only information that is
material as defined and described in the Conceptual Framework and because the word
‘significant’ is not defined in IFRS. [IFRS 12.BC79]. However, as discussed at 6.2.1 below,
disclosures of aggregate interests by statement of financial position line item are required.
The IASB decided to retain the wider definition of ‘interest in’ (i.e. an entity’s
involvement with another entity, whether contractual or non-contractual, that
exposes the entity to variability of returns from the performance of the other entity)
which was originally proposed in ED 10, rather than a narrower definition. In making
this decision, the IASB was convinced by comments received from US preparers,
auditors and users about their experience with the US GAAP requirements to
disclose information about involvement with variable interest entities. US preparers
and accountants also noted that both the aggregation guidance and the requirement
that an entity should determine, in the light of facts and circumstances, how much
detail it must give to satisfy the disclosure requirements, provide sufficient flexibility
for preparers. Consequently, the IASB decided to include in IFRS 12 the
requirement to consider the level of detail necessary to meet the disclosure
916 Chapter
13
objectives, and to include aggregation principles and guidance to assist preparers
when determining what level of detail is appropriate. [IFRS 12.BC80-81].
The IASB also decided that the objective of its risk disclosures for structured entities is
that an entity should provide information about its exposure to risk associated with
interests in structured entities, regardless of whether that risk arises from having an
existing interest in the entity or from being involved with the entity in previous periods.
Therefore the IASB decided to define an interest in a structured entity as contractual or
non-contractual involvement that exposes the entity to variability of returns. In
addition, the IASB decided to state explicitly that the disclosures about an entity’s
exposure to risk should include risk that arises from previous involvement with a
structured entity, even if an entity no longer has any contractual involvement with the
structured entity at the end of the reporting period. [IFRS 12.BC110].
6.1
Disclosure of the nature of interests in unconsolidated
structured entities
6.1.1
Disclosure of the nature, purpose, size, activities and financing of
structured entities
An entity must 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.
[IFRS 12.26].
The IASB concluded that this requirement should provide users with sufficient
information about the assets held by structured entities and the funding of those assets
without requiring specific disclosures of the assets of unconsolidated structured entities
in which the entity has an interest in all circumstances. If relevant to an assessment of
its exposure to risk, an entity would be required to provide additional information about
the assets and funding of structured entities. [IFRS 12.BC96].
6.1.1.A
Nature and purpose
Examples of the nature and purpose of a structured entity might include:
• to manage balance sheet exposure and risk, including securitisation of assets;
• to provide investors with a synthetic exposure to debt and equity instruments such
as credit linked notes and equity linked notes;
• to provide investors with a variety of investment opportunities through managed
investment strategies; and
• to obtain and facilitate funding.
Old Mutual plc discloses the nature, purpose and type of interest in unconsolidated
structured entities in a tabular format as follows:
Extract 13.8: Old Mutual plc (2017)
Notes to the consolidated financial statements [extract]
I:
Interests in subsidiaries, associates and joint arrangements [extract]
I3: Structured
entities [extract]
(a)
Group’s involvement in structured entities [extract]
Disclosure of interests in other entities 917
The table below summarises the types of structured entities the Group does not consolidate, but may have an
interest in:
Interest held by the
Type of structured entity
Nature
Purpose
Group
– Securitisation
vehicles –
Finance the Group’s
– Generate:
–
Investment in senior
for loans and advances
own assets through
–
Funding for the
and junior notes
the issue of notes to
Group’s lending
issued by the
investors
activities
vehicles
– Margin
through
sale of assets to
investors
– Fees
for
loan
servicing
– Investment funds
–
Manage client funds
– Generate fees from
–
Investments in units
through the
managing assets on
issued by the fund
investment in assets
behalf of third-party
investors
– Securitisation
vehicles – Finance
third
party
– G
enerate fees from
–
Interest in these
for third-party
receivables and are
arranging the
vehicles is through
receivables
financed through loans
structure. Interest
notes that are traded
from third party note
income may be earned
in the market
holders and bank
on the notes held by
borrowing
the Group
– Security vehicles
–
Hold and realise
– These entities seek to
– Ownership
interest
assets as a result of
protect the collateral
will be in proportion
the default of a client
of the Group on the
of the lending. At
default of a loan
31 December 2017,
the Group held no
value in security
vehicles
– Clients
investment
– Hold
client
– Generates various
– None
entities
investment assets
sources of income for
the Group
– Black
Economic
– Fund
the
acquisition – Generates interest on
–
Loans to BEE
Empowerment (BEE)
of shares by a BEE
the funding provided
schemes
funding
partner
6.1.1.B Size
The requirement to disclose the size of a structured entity would most likely be met by
providing information about the total value of the assets of the entity. However, the
Basis for Conclusions states that IFRS 12 does not require specific disclosure of the
reported assets of unconsolidated structured entities in which the entity has an interest
in all circumstances. [IFRS 12.BC96]. This would seem to suggest that measures of size other
than asset fair values would be acceptable, including (for example) the notional value of
securities issued by structured entities.
918 Chapter
13
6.1.1.C Activities
When disclosing the activities of a structured entity, these activities should include the
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 180
