Accounting Update for June 2012

Keywords: Thailand, Accounting, International Accounting Standards Board, IFRS, Consolidation

• IFRS 10, Consolidated Financial Statements

This standard, which follows the exposure draft ED 10 published in December 2008, sets out the principles for the establishment of consolidated accounts when an entity controls one or several entities.

IFRS 10 contains a single definition of control, regardless of the investor’s interest in the entity in question. An investor has control over an entity if the following conditions are fulfilled:

1. the investor has power over the investee;
2. the investor has exposure, or rights, to variable returns from its involvement with the investee; and
3. the investor has the ability to use its power over the investee to affect the amount of the returns.

IFRS 10 will replace the consolidation guidance in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities.

• IFRS 11, Joint Arrangements

This standard, which follows the exposure draft ED 9 published in December 2007, sets out the accounting principles for arrangements establishing joint control over an operation (joint operation) or an entity (joint venture).

Whether an arrangement is classified as a joint operation or as a joint venture will depend on the rights and obligations of the parties under the agreement establishing joint control.

Joint ventures can no longer be consolidated using the proportionate consolidation method. Only the equity method will be possible; hence IFRS 11 refers to IAS 28 (revised in 2011) for the accounting treatment of joint ventures in the financial statements of the venturer.

IFRS 11 will replace IAS 31 and SIC-13 on non-monetary contributions by venturers.

• IFRS 12 Disclosures of Involvement with Other Entities

This standard covers the disclosures to be made when an entity holds interests in subsidiaries, joint arrangements, associated entities or unconsolidated structured entities (e.g. a securitisation vehicle).

IFRS 10, IFRS 11 and IAS 28 R will therefore all refer to this standard, the aim of which is to provide consistent, relevant and useful financial information regardless of the level of control or influenced exercised over an entity. IFRS 12 responds to expectations expressed during the 2008 financial crisis.

• IAS 27 Separate Financial Statements (revised 2011)

This standard will only contain the principles to be applied in accounting for interests in subsidiaries, jointly controlled entities and associates where an entity presents separate financial statements established under IFRSs.

• IAS 28 Investments in Associates and Joint Ventures (revised 2011)

This standard will be applied to the accounting treatment of investments in associates and joint ventures as defined in IFRS 11.

These texts are near-final and will undergo only minor changes.

These new standards will be of mandatory application from 1 January 2013. Earlier application is permitted so long as each of the other standards in the ‘package of five' are also applied at the same time. However, an entity may voluntarily decide to provide some of the disclosures required by IFRS 12 without the obligation to apply the whole of IFRS 12 and the other consolidation standards.