Ind AS 112: Disclosure of Interests in Other Entities Explained

Ind AS 112 governs the disclosure of interests in other entities, requiring an entity to disclose information that lets a reader evaluate the nature of, and the risks arising from, its interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities, and the effect of those interests on its financial position, performance and cash flows. It prescribes no recognition and no measurement.

That is why the note fails more often than the arithmetic. Every figure it asks you to publish was decided earlier, by a judgement about what kind of relationship you have with each entity. Where that judgement is wrong or undocumented, a tidy note still misstates the group. This guide follows the order the work actually happens: classify first, disclose second.

01Why Does Ind AS 112 Exist?

It closes the gap between what a parent's own balance sheet shows and what the group behind it controls, funds or stands behind.

A parent can hold twenty per cent and still control the board, guarantee borrowings of an entity it does not consolidate, or absorb the returns of a vehicle it owns no share of. In each case the reported numbers alone mislead. The standard answers with two things: the significant judgements behind the group's conclusions, and enough detail on each category of interest for a reader to see the exposure.

The information disclosures cover interests in subsidiaries, joint arrangements and associates, and unconsolidated structured entities, each with its own required content.

It also carries a provision that defeats checklists. Where the prescribed disclosures, with those required by other standards, do not achieve that objective, the entity must disclose whatever further information is necessary. That call belongs to the entity, which is why the note repays review as part of audit and assurance work rather than a final-week tidy-up.

02Which Relationship Do You Actually Have?

Everything downstream depends on this, and it is settled by three other standards rather than by this one.

Two traps recur. The first is reading the shareholding as the answer: control turns on power over the relevant activities, so a minority holder with contractual rights can control and a majority holder can fail to. The second is the twenty per cent presumption in Ind AS 28, which can be rebutted where clearly demonstrated, and which cuts both ways — significant influence can exist below twenty per cent through board representation or participation in policy-making.

03What Does Ind AS 112 Require You to Disclose?

Once the relationship is settled, the package follows almost mechanically. Interests in subsidiaries attract the fullest set.

Alongside these sit the significant judgements, which apply whatever the category: the judgements and assumptions made in concluding that control, joint control or significant influence exists, in classifying a joint arrangement structured through a separate vehicle, and in determining that the entity is an investment entity where relevant.

04Which Disclosures Are Most Often Missed?

Five omissions account for most review points on subsidiaries, joint arrangements and associates, and none involves a difficult calculation.

• Reasoning behind a contested control conclusion. Where control is asserted on half the voting rights or fewer, or denied on more than half, the basis must be given. This is the item most often absent.
• Restrictions on moving money round the group. Statutory, contractual and regulatory limits on accessing or using assets and settling liabilities. Loan covenants and shareholder agreements are where these hide.
• Summarised financial information for material associates. Groups give it for subsidiaries and forget each individually material associate and joint venture needs it too.
• Non-controlling interests detail. Beyond the balance sheet figure: the proportion held, profit allocated during the period, and the accumulated balance at the reporting date, for each subsidiary where it is material.
• Support given without an obligation. Financial or other support provided to an unconsolidated structured entity where no contract required it, with the reasons. Awkward to disclose, so routinely skipped.

A group can produce faultless consolidated financial statements and still fail here, because consolidation and disclosure are separate obligations. Most of these gaps are visible on the face of the financial statements without opening a working paper.

05Who Has to Comply With Ind AS 112?

Two conditions must hold together: the entity reports under Ind AS, and it holds an interest in another entity. Fail either and nothing arises under the standard, though other duties in the Companies Act, 2013 continue.

Ind AS reaches listed companies, unlisted companies above the prescribed net worth threshold, and entities pulled in through a group relationship. Everything else applies the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2021. LLPs, partnership firms and proprietorships sit outside that framework altogether. In our experience as Chartered Accountants in Nashik, most companies asking about this standard fall into the second group.

One duty is independent of all of it. Section 129(3) of the Companies Act, 2013 requires consolidated financial statements wherever a company has one or more subsidiaries, associates or joint ventures, whatever framework it follows. Whether consolidated statements must exist, and what the note must contain, are separate questions.

06What Should a Group Do Before Year-End?

This work is calendar-driven and cheaper before the year closes. Seven steps, in the order they belong in the timetable.

1. Refresh the register of interests by the third quarter. List every subsidiary, joint operation, joint venture, associate and structured entity, including those acquired, formed or disposed of during the year, and reconcile it to the prior year note.
2. Re-test control wherever the facts moved. Ind AS 110 requires reassessment when facts indicate a change in any of the three elements. New shareholder agreements, changed board composition and altered funding all trigger it.
3. Re-read joint arrangement agreements that were amended. Classification turns on rights to assets and obligations for liabilities versus rights to net assets. An amended agreement can move an arrangement across that line unnoticed.
4. Request associate and joint venture data on your timetable. Entities you do not control report on their own calendar. Summarised financial information is the usual reason a group misses its own deadline.
5. Set and record the materiality thresholds. Decide which subsidiaries carry material non-controlling interests and which associates and joint ventures are individually material, and document the basis for next year.
6. Sweep agreements for restrictions and exposures. Read loan documents, shareholder agreements and regulatory approvals for limits on moving cash between group entities, and quantify maximum exposure to loss on any structured entity.
7. Read the finished note as an outsider would. Ask whether someone without your working papers could see the nature of, and risks arising from, the group's interests. Where the answer is no, more is required, and the significant judgements behind each conclusion belong in the note.

07How Did Group Reporting in India Reach This Point?

The requirements grew with the complexity of Indian group structures, and each stage followed a change in the economy rather than in accounting theory.

Before 1991, under the licence-permit regime, capacity was controlled and group structures were simple. Consolidated financial statements were not a general statutory requirement, and a reader interested in a group examined the parent alone. Disclosure of interests in other entities meant a schedule of investments at cost.

Liberalisation in 1991 changed the structures well before it changed the standards. Joint ventures with foreign partners, holding chains and special purpose vehicles multiplied, and the distance between the parent balance sheet and the real group widened. The Institute of Chartered Accountants of India answered with AS 21, AS 23 and AS 27, and the listing agreement pulled listed companies into consolidated reporting.

The present framework came in two steps. The Companies Act, 2013 made consolidation a statutory duty for every company with a subsidiary, associate or joint venture under Section 129(3), reaching far beyond listed companies. The Companies (Indian Accounting Standards) Rules, 2015 then introduced Ind AS 110, Ind AS 111 and Ind AS 112 in phases from FY 2016-17, separating what to consolidate from what to disclose. Ind AS 112 corresponds to IFRS 12, and the notified text sits on the MCA portal. Because Ind AS is converged with IFRS rather than adopted from it, an Ind AS 112 note is not automatically an IFRS 12 note, and a group reporting internationally must still work through the differences between the two frameworks.

08Frequently Asked Questions

These are the questions our Chartered Accountants in Nashik are asked most often when a group works through this standard for the first time. Further material is published on our blog.