International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 182
be disclosed gross of any collateral or hedging instruments and that separate disclosure
should be made in respect of instruments held that would mitigate the loss on a net basis.
[IFRS 7.36].
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13
UBS AG make the following disclosures in respect of its interests in unconsolidated
structured entities.
Extract 13.12: UBS Group AG (2017)
Notes to the UBS Group AG consolidated financial statements [extract]
Note 28
Interests in subsidiaries and other entities [extract]
c)
Interests in unconsolidated structured entities [extract]
The table below presents Group’s interests in and maximum exposure to loss from unconsolidated SEs as well as the
total assets held by the SEs in which UBS had an interest as of year-end, except for investment funds sponsored by
third parties, for which the carrying value of UBS’s interest as of year-end has been disclosed.
Interests in unconsolidated structured entities
31.12.17
Maximum
CHF million, except where
Securitization
Client
Investment
exposure to
indicated
vehicles
vehicles
funds Total
loss1
Trading portfolio assets
363
308
6,143
6,815
6,815
Positive replacement values
21
68
22
111
111
Loans 0
0
97 97
97
Financial assets designated at fair value
84
662
105 255
1,780
Financial assets available for sale
0
3,865
45 3,910
3,910
Other assets
291
292
0 320
1,407
Total assets
7603
4,337
6,412
11,508
Negative replacement values
204
53 203
276
14
Total liabilities
20
53 203
276
Assets held by the unconsolidated
structured entities in which UBS
had an interest (CHF billion)
575
786
4127
1
For purposes of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of
collateral or other credit enhancements.
2
Represents the carrying value of loan commitments, both designated at fair value and held at amortized cost. The
maximum exposure to loss for these instruments is equal to the notional amount.
3
As of 31 December 2017, CHF 0.7 billion of the CHF 0.8 billion (31 December 2016: CHF 1.0 billion of the CHF
1.1 billion) was held in Corporate Center – Non-core and Legacy Portfolio.
4
Comprised of credit default swap (CDS) liabilities and other swap liabilities. The maximum exposure to loss for CDS
is equal to the sum of the negative carrying value and the notional amount. For other swap liabilities, no maximum
exposure to loss is reported.
5 Represents principal amount outstanding.
6 Represents the market value of total assets.
7
Represents the net asset value of the investment funds sponsored by UBS and the carrying value of UBS’s interest in
the investment funds not sponsored by UBS.
The Group retains or purchases interests in unconsolidated SEs in the form of direct investments,
financing, guarantees, letters of credit, derivatives and through management contracts.
The Group’s maximum exposure to loss is generally equal to the carrying value of the Group’s interest
in the SE, with the exception of guarantees, letters of credit and credit derivatives for which the contract’s
notional amount, adjusted for losses already incurred, represents the maximum loss that the Group is
exposed to. In addition, the current fair value of derivative swap instruments with a positive replacement
value only, such as total return swaps, is presented as the maximum exposure to loss. Risk exposure for
these swap instruments could change over time with market movements.
Disclosure of interests in other entities 925
The maximum exposure to loss disclosed in the table on the previous page does not reflect the Group’s risk
management activities, including effects from financial instruments that may be used to economically hedge the
risks inherent in the unconsolidated SE or the risk-reducing effects of collateral or other credit enhancements.
In 2017 and 2016, the Group did not provide support, financial or otherwise, to an unconsolidated SE
when not contractually obligated to do so, nor has the Group an intention to do so in the future.
In 2017 and 2016, income and expenses from interests in unconsolidated SEs primarily resulted from mark-
to-market movements recognized in net trading income, which have generally been hedged with other
financial instruments, as well as fee and commission income received from UBS-sponsored funds.
6.2.2
Disclosures of actual and intended financial and other support to
structured entities
If during the reporting period an entity has, without having a contractual obligation to
do so, provided financial or other support to an unconsolidated structured entity in
which it previously had or currently has an interest (for example, purchasing assets of
or instruments issued by the structured entity), the entity must disclose:
(a) the type and amount of support provided, including situations in which the entity
assisted the structured entity in obtaining financial support; and
(b) the reasons for providing the support. [IFRS 12.30].
An entity must also disclose any current intentions to provide financial or other support
to an unconsolidated structured entity, including intentions to assist the structured
entity in obtaining financial support. [IFRS 12.31].
See 4.4.2 and 4.4.4 above for discussion of these disclosure requirements.
Example 13.5 above is an illustrative disclosure of the provision of financial support to
a structured entity.
6.3
Additional disclosures regarding the nature of risks from
interests in unconsolidated structured entities
In addition to the requirements at 6.2 above, IFRS 12 also requires an entity to disclose
additional information that is necessary to meet the disclosure objective to disclose
information that allows users of a reporting entity’s financial statements to evaluate the
nature of, and changes to, the risks associated with its interests in unconsolidated
structured entities. Examples of additional information that, depending on the
circumstances, might be relevant to an assessment of the risks to which a reporting
entity is exposed where it has an interest in an unconsolidated structured entity are:
(a) the terms of an arrangement that could require the entity to provide support to a
unconsolidated structured entity (e.g. liquidity arrangements or credit rating
triggers associated with obligations to purchase assets of the str
uctured entity or
provide financial support) including:
(i) a description of the events or circumstances that could expose the reporting
entity to a loss;
(ii) whether there are any terms that would limit the obligation;
(iii) whether there are any other parties that provide financial support and, if so,
how the reporting entity’s obligation ranks with those of other parties;
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(b) losses incurred by the entity during the reporting period relating to its interests in
unconsolidated structured entities;
(c) the types of income the entity received during the reporting period from its
interests in unconsolidated structured entities;
(d) whether an entity is required to absorb losses of an unconsolidated structured entity
before other parties, the maximum limit of such losses for the entity and (if relevant)
the ranking and amounts of potential losses borne by parties whose interests rank
lower than the entity’s interest in the unconsolidated structured entity;
(e) information about any liquidity requirements, guarantees or other commitments
with third parties that may affect the fair value or risk of the entity’s interests in
unconsolidated structured entities;
(f) any difficulties an unconsolidated structured entity has experienced in financing
its activities during the reporting period; and
(g) in relation to the funding of an unconsolidated structured entity, the forms of
funding (e.g. commercial paper or medium term notes) and their weighted-average
life. That information might include maturity analyses of the assets and funding of
an unconsolidated structured entity if the structured entity has longer-term assets
funded by shorter-term funding. [IFRS 12.B25-26].
No prescriptive format is suggested for these disclosures. Therefore, a reporting entity
will have to decide whether a tabular or narrative format is suitable depending on its
individual circumstances. The examples above are not exhaustive.
The IASB does not intend each item in the list of examples above to apply in all circumstances.
The IASB’s intention regarding the disclosure of risk is that each entity should disclose
information that is important when assessing that exposure but not to cloud the information
with unnecessary detail that would be considered irrelevant. If an entity has a large exposure
to risk because of transactions with a particular unconsolidated structured entity, then the
Board would expect extensive disclosure about that exposure. In contrast, if the entity has
very little exposure to risk, little disclosure would be required. Therefore, the list of additional
information above is a list of examples of information that might be relevant and not a list of
requirements that should be applied regardless of the circumstances. [IFRS 12.BC113-114].
Given that this information is required in respect of structured entities that the reporting
entity does not control, and over which it may not exercise significant influence, some
of the disclosures suggested in respect of (d), (f) and (g) above may be difficult to provide.
This is because they require current information about the activities of the structured
entity, rather than information about the interests held by the reporting entity.
Comments on some of the suggested disclosures are at 6.3.1 to 6.3.7 below.
6.3.1
Disclosure of support
Example 13.5 above illustrates disclosure of a contractual arrangement that could
require support to a structured entity.
Example 13.6 above illustrates disclosure of support provided to a structured entity
where there is no contractual obligation to provide such support.
The meaning of ‘support’ is discussed at 4.4.2 above.
Disclosure of interests in other entities 927
6.3.2
Disclosure of losses
The standard does not elaborate on ‘losses incurred’ but we infer that it refers to both
realised and unrealised losses and losses recognised in both profit and loss and other
comprehensive income. It may be informative to explain to users of the financial
statements the line items in the primary statements in which the losses have been
recognised. It would also be informative to disclose the aggregate losses incurred in
respect of investments held at the reporting date as well as the losses incurred in the
reporting period for those interests disposed of during the period.
Example 13.8: Losses incurred from investments in unconsolidated structured
entities
The Group has incurred the following realised and unrealised losses in respect of its investments in
unconsolidated structured entities:
2019
2018
€’000 €’000
Realised losses
200
200
Unrealised losses (profit and loss)
400
300
Unrealised losses (other comprehensive income)
500
400
1,100 900
Split by:
Collateralised debt obligations
800
700
Credit card receivables
300
200
1,100 900
Transferred
Transferred
Aggregate losses incurred
in year
in year
2019
2018
€’000 €’000
Collateralised debt obligations
2,300
1,500
Credit card receivables
1,700
1,400
4,000 2,900
6.3.3
Disclosure of types of income received
This disclosure is similar to the disclosure required at 6.1.2 above in respect of
unconsolidated structured entities for which the reporting entity does not have an interest
at the reporting date. However, (c) above refers only to the types of income received and
does not refer to the need for a specific quantification of the income received.
‘Income from a structured entity’ includes, but is not limited to:
• recurring and non-recurring fees (structuring fees, management fees, placing
agent fees, etc.);
• interest;
• dividends;
• gains or losses on the remeasurement or derecognition of interests in structured
entities; and
• gains or losses from the transfer of assets or liabilities to the structured entity.
[IFRS 12 Appendix A].
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6.3.4
Disclosure of ranking and amounts of potential losses
Disclosure is required of the maximum limit of losses for a reporting entity where a
reporting entity is required to absorb losses of a structured entity before other parties.
This requirement is likely to be relevant for reporting entities which hold notes in
securitised structured entities or where the interests in the structured entity are held are
in the form of multiple contractually linked or ‘tranched’ notes.
An example of the type of disclosure that could be made is shown below.
Example 13.9: Maximum exposure to and ranking of loss exposure by type of
structured entity
The following table shows the maximum exposure to loss for ABC Bank by type of str
uctured entity and by
seniority of interest, where ABC Bank’s interest ranks lower than those of other investors and so ABC Bank
absorbs losses before other parties.
Seniority of interests
€’000
Subordinated
Mezzanine
Senior
Most senior
Total
interests
interests
interests
interests
Mortgage backed
securitisations
i) ABC Bank’s maximum
exposure to loss
150
592
850
346 1,938
ii) Potential losses borne
by more junior interests
–
897
7,875
10,332 19,104
CDOs and CLOs
i) ABC Bank’s maximum
exposure to loss
60
167
243
32 502
ii) Potential losses borne
by more junior interests 27
456
4,787
5,311
10,581
Asset backed commercial
paper
i) ABC Bank’s maximum
exposure to loss
–
–
–
379
379
ii) Potential losses borne
by more junior interests
–
–
–
25 25
6.3.5
Disclosure of liquidity arrangements
This disclosure might include:
• liquidity arrangements, guarantees or other commitments provided by third
parties to the structured entity which affect the fair value or risk of the
reporting entity’s interests in the structured entity; and
• liquidity arrangements, guarantees or other commitments provided by third
parties to the reporting entity which affect the risks of the reporting entity’s
interests in the structured entity.
We do not believe that this disclosure is intended to include liquidity arrangements,
guarantees or other commitments made by the structured entity to third parties as while
an arrangement provided to a third party may itself qualify as an interest in a structured