I’ve talked previously about the issue of VIE disclosures under IFRS, and how they are leaving investors clueless as to the nature of VIE “subsidiaries”.
Well it looks like there will be some movement on this front with new rules for consolidation and disclosures under IFRS, although they don’t come into effect until 2013.
The rules in question are IFRS 10, 11, and 12, where IFRS 10 and 11 deal with consolidation and Joint-venture/Joint-operations consolidation, and IFRS 12 deals with new disclosure requirements. The rules can be used before 2013, but must be adopted as a package, apart from the disclosure rules in IFRS 12, which can be adopted on their own.
These new disclosure requirements should mean a company has to account for the control mechanisms for any subsidiary, which is not consolidated based on equity ownership. So it would seem we can expect disclosures on the IFRS exchanges more in line with what is currently available under US GAAP.
Investors will undoubtedly welcome any reform that will bring greater clarity to VIE structures on IFRS exchanges, but the extent to which these disclosures will go in practise is still uncertain. As IFRS is a framework based on principles it is doubtful whether there will be precise enough requirements to ensure all relevant information investors need to have at their disposal is available.
The time leading up to the implementation of these rules is a chance for the relevant authorities for exchanges with a heavy Chinese VIE presence to set up their own more precise rules and guidelines on what information should be included in the new IFRS 12 disclosures.