APPENDIX E

AUSTRALIAN IMPLEMENTATION GUIDANCE for not-for-profit entities

This appendix is an integral part of AASB 12 and has the same authority as the other parts of the Standard. The appendix applies only to not-for-profit entities. The appendix does not apply to for-profit entities or affect their application of AASB 12.

IG1 AASB 12 incorporates International Financial Reporting Standard IFRS 12 Disclosure of Interests in Other Entities, issued by the International Accounting Standards Board. Consequently, some of the text of this Standard particularly reflects the perspective of for-profit entities. The AASB has prepared this appendix to explain and illustrate the definition of ‘structured entity’ in the Standard for not-for-profit entities in the private and public sectors, to address circumstances where the for-profit perspective does not readily translate to a not-for-profit perspective.

IG2 AASB 12 includes specific disclosure requirements regarding both consolidated and unconsolidated structured entities. Some of those disclosures are not required of entities preparing general purpose financial statements under Australian Accounting Standards – Reduced Disclosure Requirements.

Structured Entities

IG3 A structured entity is defined in Appendix A of AASB 12 as follows:

“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.”

Relevant activities are defined in AASB 10 as the activities of an entity that significantly affect the entity’s returns. The current ability to direct the relevant activities is necessary in order for one entity to control another.

IG4 Paragraph B22 of AASB 12 states that structured entities often have some or all of the following features or attributes: restricted activities, a narrow and well-defined objective, insufficient equity to finance its activities without subordinated financial support, and financing tranches in the form of multiple contractually linked instruments. Paragraph B23 gives examples of structured entities: securitisation vehicles, asset-backed financings and some investment funds.

IG5 The definition of a structured entity depends on voting or similar rights not being the dominant factor in deciding who controls an entity. Voting rights are a common feature in many for-profit entities, having a dominant role in determining who controls an entity. Accordingly, the principle underlying the definition limits the scope of structured entities to entities that are controlled through less conventional means. The features listed in paragraph B22 and the examples in paragraph B23 also suggest that structured entities constitute a limited class of entity.