Office of Local Government AASB 10 Consolidated Financial Statements AASB 11 Joint Arrangements AASB...
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Transcript of Office of Local Government AASB 10 Consolidated Financial Statements AASB 11 Joint Arrangements AASB...
Office ofOffice ofLocal GovernmentLocal Government
AASB 10 Consolidated Financial Statements
AASB 11 Joint ArrangementsAASB 12 Disclosure of
Interests in Other Entities
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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Please enter questions at any time and we will attempt to answer them during the presentation.
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If you wish to discuss any matters in person, please do not hesitate to contact the relevant OLG staff.
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time can be entered here
Laura Love
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Interaction of accounting standards
Yes
No
Yes – determine type of joint arrangement
Yes
No Control in own right?
Joint control?
Significant
influence?
Consolidate in accordance with
AASB 10
AASB 12 disclosures
No
Joint OperationAccount for share of
assets, liabilities, income and
expenses – AASB 11
Joint Venture / Associates
Equity accounting in accordance with
AASB 128
AASB 12 disclosures AASB 12 disclosuresTreat as investment in accordance with AASB 139 / AASB 9
AASB 7 and AASB 13 disclosures
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
AASB 10 – 12 for not-for-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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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.”
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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.
• 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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 investeeE.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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 substantiveE.g. •power to appoint and remove members of railway authority without cause – reluctance to do this due to sensitivity in the electorate.
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Example
Entity F41%
interestAppoints 5 directors
17 other investors59% voting
interestAppoint 7 directors
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%).
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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.
17
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
AASB 11:JOINT ARRANGEMENTS
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
What is a joint arrangement?
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.
Joint arrangement – an arrangement of which two or more parties have joint
control.
Joint arrangement – an arrangement of which two or more parties have joint
control.
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Classifying joint arrangements
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Joint venture
Classification - summary
YesNo
Rights to assets and obligations for liabilities
Rights to net assets
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
AASB 12: DISCLOSURES OF INTERESTS IN OTHER
ENTITIES
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Scope of AASB 12
Applicable to an entity with an interest in any of the following:
•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.
SubsidiariesJoint
arrangementsAssociates
Unconsolidated structured entities
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Subsidiaries that have material non-controlling interests
• For all subsidiaries that have NCI that is material to the reporting entity:• 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.
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Interests in Subsidiaries(a) Composition of the Group
Principal place of business / Country of Incorporation
Percentage Owned (%)*
2015
Percentage Owned (%)*
2014
Subsidiaries: Sub 1 Australia Sub 2 AustraliaThe 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.
(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.]
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Interests in subsidiaries continued
Name of subsidiary Sub 1 Sub 2Reporting period 2015 2014 2015 2014
% 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 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
(c) Subsidiaries with material non-controlling interestsThe amounts disclosed below are prior to any inter-company eliminations.
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Interests in Subsidiaries continued
[year end date] $Consideration received Less: Increase in net assets attributable to NCI
Increase / (decrease) in Council interest
[year end date] $NCI interest acquired Less: Consideration paid Increase / (decrease) in Council interest
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 interestDuring 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.
Acquisition of ownership interestDuring 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.
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Interests in Joint Arrangements (and Associates)
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.
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
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Joint ventures (and associates) continued
Name of joint venture 2015 2
014
2015
2014
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 other 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 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
Joint venturesAll 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 venturesThe 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.
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Joint ventures (and associates) continued
[Name of joint venture] Current year end $ Prior year end $
Group’s share of xx% of net assets
[insert reconciling items]
Carrying amount
Fair value of investment (if there is a quoted price)
Reconciliation of carrying amount of interest in joint venture to summarised financial information for joint ventures accounted for using the equity method:
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Aggregate information for joint ventures that are not individually material
Current year end $ Prior 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 from discontinued operations
Other comprehensive income
Total comprehensive income
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.
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Other joint venture disclosures
Commitments relating to joint ventures held
Contingent liabilities incurred jointly with other investments over joint ventures held
Unrecognised share of lossesThe 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
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Unconsolidated Structured Entities
Structured entity type
Total income Assets transferred to structured entities
[income categories]
Carrying amount Fair value
COMMENTARY – Interests in Unconsolidated structured entitiesIf the Council has any unconsolidated structured entities such as involvement with a community organisation then the note below needs to be includedNature 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].
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Unconsolidated Structured Entities
Financial statement line item
Loans Investments
Commitments / guarantees
Derivative instruments
Total Assets Total Liabilities
Total
Structured entity type
Maximum exposure to loss Carrying amount of assets / liabilities that relates to unconsolidated structured entities
Loans Investments Commitments / guarantees
Total Assets Liabilities
Nature of risksCarrying amount of assets and liabilitiesThe 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.
Maximum exposure to lossThe 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].
OFFICE OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
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 OFOFFICE OF LOCAL LOCAL
GOVERNMENTGOVERNMENT
Questions