IFRS 12

Definition

IFRS 12 is an International Financial Reporting Standard that requires entities to disclose information about their interests in other entities, including subsidiaries, joint arrangements, associates, and unconsolidated structured entities. This standard aims to enhance transparency in financial statements and provide users with a better understanding of the nature, risks, and financial effects of these interests, particularly in the context of income tax disclosures.

5 Must Know Facts For Your Next Test

1. IFRS 12 enhances the disclosure framework for entities with various interests in other entities by requiring a clear depiction of the nature of these interests.
2. Entities must disclose information that helps users understand the significance of these interests on their financial position and performance.
3. Specific disclosures include the types of interests held, the nature and extent of risks associated with those interests, and any restrictions on asset transfers.
4. IFRS 12 complements other IFRS standards, such as IFRS 10 (Consolidated Financial Statements) and IFRS 11 (Joint Arrangements), creating a cohesive disclosure environment.
5. Effective application of IFRS 12 ensures that stakeholders receive detailed information about potential risks and rewards from investments in other entities, which can influence tax liabilities.

Review Questions

• How does IFRS 12 impact the way entities disclose their interests in joint arrangements?
  • IFRS 12 requires entities to provide detailed disclosures regarding their interests in joint arrangements, ensuring that users understand the nature of these arrangements and the associated risks. This includes specifying whether the entity is part of a joint operation or a joint venture, alongside the financial effects such as share of profits or losses. This level of transparency helps stakeholders evaluate the implications for future income tax obligations based on these arrangements.
• Discuss how IFRS 12 interrelates with other IFRS standards regarding income tax disclosures.
  • IFRS 12 works alongside other standards like IFRS 10 and IFRS 11 by setting a comprehensive framework for how entities should disclose their relationships with other entities. By requiring detailed information on interests in subsidiaries, joint ventures, and associates, it enables a clearer picture of potential tax implications arising from these relationships. This interconnectedness ensures that users have all necessary insights to assess risk exposure linked to tax liabilities related to investments in other entities.
• Evaluate the effectiveness of IFRS 12 in enhancing transparency for investors assessing potential income tax impacts.
  • IFRS 12 effectively enhances transparency for investors by mandating comprehensive disclosures about an entity's interests in other entities. This transparency allows investors to assess not only the direct financial implications but also potential future income tax impacts stemming from these relationships. The standard's focus on risk exposure equips investors with critical information needed to make informed decisions, fostering greater trust in financial reporting practices across different jurisdictions.

Related terms

Consolidated Financial Statements: Financial statements that present the assets, liabilities, equity, income, and cash flows of a parent company and its subsidiaries as one single entity.

Joint Arrangements: Contracts where two or more parties undertake an economic activity that is subject to joint control, which can take the form of joint operations or joint ventures.

Disclosure Requirements:

Regulations that mandate companies to provide relevant information about their financial position, performance, and risks in their financial statements.