ConsolidationMr Tham Sai Choy

Deputy Chairman, Accounting Standards Council of Singapore

September 30, 2010

Outline of the Agenda

Introduction

Presentation of AOSSG Discussion Paper

- key issues identified from the overall proposals in the

Consolidation project

Questions and Answers

Conclusion

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Presentation of AOSSG Discussion Paper

1. Consolidation model for structured entities

2. Dominant shareholder approach

3. Limited scope exception for investment entities

4. Proposed disclosure requirements for involvement

with structured entities

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Q1: Consolidation Model for Structured Entities

Single cohesive standard for consolidation of voting interest entities and structured entities

Guidance applicable to structured entities should also be relevant for voting interest/ non-structured entities

Retaining indicators under SIC-12

Risks and Rewards as an indicator of Control

Autopilot mechanism- irreversible predetermination of strategic operating and financing policies is a form of power

AOSSG recommendation: To adopt a single control model and retain the Risks & Rewards and Autopilot Mechanism as indicators.

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Dominant shareholder approach – control is dependent on the relative size, dispersion and level of activism of the remaining vote holders:

Application challenge and inconsistent interpretation

Consolidation based on temporary control and presumption that remaining vote holders would not collectively vote in future meetings

Introduction of fine line between significant influence and control

Impairment of decision-usefulness of consolidated financial statements as a results of potential unnecessary volatility and consolidation of entities with large non-controlling interest

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Q2: Dominant shareholder approach

AOSSG Recommendations:

Control should be based primarily on the relationship between the reporting entity and the other.

Consolidation should apply only where there is evidence of effective control currently and there is no evidence that such control might be lost in the foreseeable future.

Incorporation of requirement that reporting entity has control where there is evidence of its ability to direct the activities of another entity that significantly affect returns

Emphasis should be placed on the potential substantive kick out or preventive rights held by other parties when determining who has control.

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Q2: Dominant shareholder approach

Definition of investment entities

Relevance and appropriateness of unit of ownership and pooling of interests as criteria for single owner investment entity or sovereign funds

Proposed criteria may allow certain entities such as private equities/ venture capitalists that actively managed their investments to be investments entities

AOSSG Recommendation: Review the proposed criteria including removing unit ownership and pooling of interest

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Q3: Limited scope exception for investment entities

Parent company accounting of an investment entity

Decision-usefulness of information - investments managed at fair value basis are consolidated at parent company level

Inconsistency compared to recent IFRIC decision to allow portion of the investment of an associate measured at fair value at the subsidiary level to flow through to the consolidated account at parent company level

AOSSG Recommendation: Extend the limited scope exception in consolidation to the parent entity regardless of whether it is an investment entity itself.

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Q3: Limited scope exception for investment entities

Q4: Proposed disclosure requirements for involvement with structured entities

Disclosure of involvement with structured entities

Conflict the objective of having single control model

Unclear definition of structured entities and unclear guidance of what is meant by “involvement with structured entities”

Practical difficulty to obtain information for disclosure and additional cost to align potentially different reporting periods as these entities are not controlled by the reporting entity

Onerous requirement to disclose three years comparative information on the current income and assets transferred to structured entities sponsored or set up by the reporting entity

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Q4: Proposed disclosure requirements for involvement with structured entities

Q4: Proposed disclosure requirements for involvement with structured entities

AOSSG recommendation:

Single model of disclosure requirements

Require only specific risk disclosure for significant involvement with unconsolidated structured entities

Exempt the requirements for entities that have accounted the non-consolidated structured entities as associate

Remove the requirement for three years comparative disclosures on structured entity set up or sponsored by the reporting entity

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Q4: Proposed disclosure requirements for involvement with structured entities

Questions and Answers

1. Consolidation model for structured entities

2. Dominant shareholder approach

3. Limited scope exception for investment entities

4. Proposed disclosure requirements for involvement

with structured entities

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Any other questions for discussion?

Conclusion Summary of discussion

Generally supportive of the tentative decisions

Clear defined control principles and application guidance are critical

Useful indicators under the existing standard should be retained

Proposals on dominant shareholder approach, definition of investment entities and parent company accounting for investment entities need to be reviewed based on decision-usefulness of the information to users

Disclosure requirements should be objective-based and practical

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Approval of discussion paper for submission to IASB?

Conclusion

Thank you!

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