What’s new?

Accounting for interests in other entities deals with how to prepare financial statements when an entity controls, jointly controls, or exercises significant influence over other entities, activities or assets. The existing Standards of GRAP on Consolidated and Separate Financial Statements (GRAP 6), Investments in Associates (GRAP 7), and Interests in Joint Ventures (GRAP 8) and related Interpretations have been withdrawn and replaced by new Standards which are effective for financial periods commencing on or after 1 April 2020. The new Standards are as follows:

• Separate Financial Statements (GRAP 34)
• Consolidated Financial Statements (GRAP 35)
• Investments in Associates and Joint Ventures (GRAP 36)
• Joint Arrangements (GRAP 37)
• Disclosure of Interests in Other Entities (GRAP 38)

Note: These Standards are only effective for trading entities from 1 April 2021.

The changes to the existing Standards were needed to align them with international standards in the public and private sector. Alignment with international standards – particularly in this area – aids the preparation of consolidated financial statements that include entities that apply Standards of GRAP and IFRS Standards.

The key differences between the existing and new Standards are as follows:

1. Accounting for investments in other entities in the separate financial statements – When entities prepare separate financial statements, i.e. stand-alone financial statements of the entity, they can account for investments in controlled entities, joint ventures and associates at cost, fair value, or using the equity method. The equity method was previously not permitted.
2. Introduction of “investment entities” – Entities are required to consolidate interests in other entities where control exists. The exception is investments that are held by “investment entities”. “Investment entities” obtain funds from one or more investors and provide management services to those investors, invest funds on behalf of those investors to provide capital returns or investment revenue, and measure and evaluate the performance of those investments on a fair value basis. Investments that are controlled by investment entities are measured at fair value rather than being consolidated.
3. Definition of control – The definition of control has changed to include scenarios where an entity is exposed to, or has rights to, variable benefits because of its involvement with the other entity (which could include losses), and the entity has the ability to affect the nature or amount of those benefits (or losses) because of its power over the entity. Additional application guidance is provided to explain how control should be applied in various scenarios in the public sector.
4. Treatment of jointly controlled entities – Previously, entities could either apply the equity method or proportionate consolidation when including jointly controlled entities in their financial statements. The application of the equity method is now mandatory for jointly controlled entities.
5. Revised disclosure requirements – The disclosure requirements of the existing Standards have largely been combined into one Standard. A number of new disclosure requirements have been introduced for the different arrangements that could exist where an entity has an interest in another entity.

Access the relevant documents

Entities should consult the following documents in preparing their financial statements in the new financial year:

• Directive 5 on Determining the GRAP Reporting Framework and related resources: Directive 5.
• Interests in other entities: GRAP 34; GRAP 35; GRAP 36; GRAP 37; and GRAP 38.
• FAQs: Link.

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This content has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved or otherwise acted on by the Board.