Download Investment entities

– more than meets
the eye?
Colin Parker
Head of GAAP Consulting
www.gaap.com.au
For the Strategy Group
Melbourne
2 December 2013
Disclaimer
© GAAP.com.au Pty Ltd Oct 2013 – all rights reserved
This presentation is intended for instruction. It is general information
only, and is not specific business advice or financial advice and no
person should rely on the contents without first obtaining advice from a
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Blockbuster snapshot
Standard
Transition
1/1/ 2012
(3rd Balance Sheet
date)
Comparatives
31/12/2012
Financial
Statements
31/12/2013
YES
YES
YES
1/1/2013
1/1/2013
31/12/2013
31/12/2014
31/12/2014
31/13/2014
YES
YES
YES
AASB 12 Disclosures
of interests in other
entities
NA
YES
YES
AASB 13 Fair value
NA
YES
YES
• AASB 10
Consolidated
financial statements
• Investment entities
• NFPs affected
AASB 11 Joint
arrangements
“The potential effect of these Standards is yet
to be fully determined” a listed for 30 June
2013
4
Today’s focus is on AASB 10 –
understand the basics
1. Key concepts only – its about identification!
2. Investment entity exemption
3. NFP guidance
4. Disclosure
5. YOUR actions now!
Context
• The Problem
– Practice varied
– Perceived differing concepts in IAS 27
(control) and SIC-12 (indicators of control)
– GFC
•
•
•
•
•
Objective
Key features
Changed/unchanged
Result
Retrospectivity under AASB 108
– Third balance sheet
Interaction between AASB 10,11,12, and AASB 128
Control alone?
Yes
No
Consolidation – AASB 10
Disclosures in accordance
with AASB 12
Joint control?
No
Yes
Significant influence?
Joint arrangement – AASB 11
Disclosures in accordance with
AASB 12
Yes
Associate - AASB 128
Disclosures in accordance
with AASB 12
No
AASB 9
Where does AASB 10 have
impact?
Special purpose
vehicles
Agent or
principal?
De Facto control
(< 50%)
Potential voting
rights
Silos guidance
• Used to consolidate based on exposure to risks
• Now control = power + exposure to variable returns
• Is investor / decision-maker acting as agent or
principal?
• e.g. Investment managers / asset managers
• New model – consider all facts and circumstances
• Relationships without contracts may be judged as
giving control
• AASB 127 – currently exercisable
• AASB 10 – determine if substantive
• Are specified assets a separate entity for control
purposes if investee has power over those assets
only?
Elective, exemptions & transition
• Elective for a parent where conditions met:
1. WOS or partly sub, all owners informed, no
objection
2. Debt or equity instruments not traded in a
public market
3. Not a ‘filer’ for purpose of issuing any class of
financial instruments in a public market
4. Ultimate or intermediate parent produces CFS
• Available for public use
• Comply with IFRS
• Exclusions – ‘Employee benefits’ & Investment
entities
• Transition – business combinations
AASB 10 Consolidated financial
statements
• If an entity is a parent, it prepares consolidated financials
• An entity is a parent if it controls an investee
• 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.”
What is the
difference?
The change:
Previously, AASB 127 defined control as control is the power to
govern the financial and operating policies of an entity so as to obtain
benefits from its activities
New elements in deciding control
POWER OVER RELEVANT ACTIVITIES:
Is it decided just by voting rights?
- I hold the majority
- What have the others got?
-
I don’t hold the majority
- Agreements with other voters
- Contractual agreements
- Potential voting rights
- De facto control
Control
• Investor must
– Determine nature of involvement in investee
– Identify whether it is parent who controls investee
• An investor controls an investee when it is exposed, or
has rights, to variable returns from its involvement with
investee and has ability to affect those returns through
its power over investee
• Consider all facts and circumstances
Element 1 – power
• Existing rights that give it current ability to direct relevant
activities
• Rights
– Straight forward (directly and solely thru voting rights)
– Complex (many factors to consider)
• Current ability
• Two or more investors ‘most significantly’
• Protective rights do not result in power
Element 2 & 3 – returns and ability
•
•
•
•
Returns vary with performance
Only one can control but
More than one party can share in returns
Investor with decision-making rights – principal or agent
determination
Assessing control
Clear
1. Purpose and design of investee?
–
Equity instruments Vs. voting rights not dominant
More Complex
1. Relevant activities and how decisions-made?
2. Rights give current ability to direct relevant activities?
3. Investor exposed, or has rights, to variable returns from
its involvement?
4. Investor has ability to use its power over investee to
affect amount of investor’s returns?
5. Consider nature of relationship with other parties?
Continuous assessment needed
Facts
change
Principal
or agent
Changes
to
exposure
or rights
Power
change
Event
Investment entities –
excluded from
consolidation
17
Investment entities amendments
• Avoid consolidation
• Measure eligible subsidiaries at FVTPL instead
• Must consider all facts and circumstances when
assessing whether it is an investment entity
Private equity
entity
Superannuation
funds
Venture capital
entity
Other investment
funds
Sovereign wealth
funds
Criteria for an investment entity
Obtains funds from one or more investors for purpose of
providing those investor(s) with investment management services
Commits to its investor(s) that its business purpose is to invest
funds solely for returns from capital appreciation, investment
income, and
Measures and evaluates performance of substantially all of its
investments on a fair value basis
Typical characteristics
1. More than one investment
2. More than one investor
3. Investors that are not related to entity or other members
of group containing entity
4. Ownership interests, typically in form of equity or similar
interests (e.g. partnership interests), to which
proportionate shares of net assets of the investment
entity are attributed
NFP context
21
NFP guidance – just released
Element
NFP context
Control
Financial interest not necessary
Its about the relationship
Power
Deploy assets or incur liabilities
Providing G&S to investor/other parties
Might arise from legislation
Rights
Policy directions
Veto rights over budget
No need to have day-to-day responsibility
Exposure
Financial and non-financial
Direct and indirect
Furtherance of investor’s objectives
Disclosure of interests in other
entities – its complex!
23
Disclosure of interests in other
entities
• Objective
– Significant judgements and assumptions about interest another
entity and type of joint arrangement
– Information: subsidiaries, joint arrangements and associates,
and structured entities
– Additional disclosures to meet objective
– Level of detail (aggregate and disaggregate)
• Application
– 1 January 2013
– Disclosures in AASB 12 limited to operative dates of AASB 10
and 11
– No transitionals; AASB 101 (comparatives) applies
‘Interest’ in another entity
• “A contractual and non-contractual involvement that
exposes entity to variability of returns from performance
of other entity”; evidenced by:
– Holding equity or debt instruments
– Other forms of involvement (e.g., provision of funding, liquidity
support, credit enhancement and guarantees)
• Includes means by which entity has control or joint
control of, or significant influence over, another
• Normally excludes a typical customer supplier
relationship
Significant judgements and
assumptions
• Disclose information (and changes) in determining:
– Controls another entity
– Joint control of an arrangement or significant influence over
another entity
– Type of joint arrangement when the arrangement has been
structured through a separate vehicle
•
Examples
– Does not control another entity even though it holds more than
50% of voting rights
– Controls another entity even though it holds less than 50% of
voting rights.
– An agent or a principal
– Significant influence (yes/no at 20% threshold)
Subsidiaries
• Disclose information that enables users of consolidated
financial statements to:
– Understand: composition of group and interest that NCI have in
group’s activities and cash flows
• Evaluate:
– Nature and extent of significant restrictions on its ability to
access or use assets, and settle liabilities, of group
– Nature of, and changes in, risks associated with its interests in
consolidated structured entities
– Consequences of changes in its ownership interest in a
subsidiary that do not result in a loss of control
– Consequences of losing control of a subsidiary during the
reporting period.
Interests in unconsolidated
structured entities
• Designed so that voting or similar rights are not
dominant factor in deciding who controls entity
• Disclose information that enables users:
– Understand nature and extent of its interests in unconsolidated
structured entities
– Evaluate nature of, and changes in, risks associated with its
interests in unconsolidated structured entities
Implications and actions
29
Some implications
1.
2.
3.
4.
5.
6.
7.
8.
Knowledge acquisition
May change previous consolidation conclusions
Dual role an investor in manager of investment fund
Update systems and processes (including detailed
accounting policies)
Debt covenants
Stakeholder engagement (Remember Centro
responsibilities)
Reduced structuring opportunities
Opening balances now
Action – AASB 10
1. Understand AASB 10 and differences from AASB 127
2. Design a template for AASB 10 determinations that will need to be
applied ‘involvement with an entity’
3. Review all involvements against template
4. Decide on control or not
5. Fine judgements (apply significant judgement rules)
6. Consider independent review of decisions made
7. Apply transition arrangements
8. Revisit information and decision-making process continuously
9. Watch for AASB’s NFPs guidance
Action – AASB 12
1. Understand AASB 12 and start ASAP
2. Identify all interests in other entities (documentation
vital)
3. Organise other entities to supply required information in
a timely manner
4. Consider aggregating and disaggregating information
5. Remember you are unique (no cutting and pasting)
6. Draft notes well in advance
7. Consider independent assurance
8. Revisit for each reporting period
GAAP Consulting Network
‘Excellence in Financial Reporting’
www.gaap.com.au
Further assistance
Colin Parker
Founder and head of GAAP Consulting Network
Team leader advisory & litigation support
Former member of AASB
[email protected]
www.gaap.com.au
LinkedIn Colin Parker
0421 088 611
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