SIC-12 — Consolidation – Special Purpose Entities


  • IAS 27 Consolidated and Separate Financial Statements


  • Issued November 1998.
  • Effective date: Annual financial periods beginning on or after 1 July 1999.
  • Amended by IFRIC: November 2004 to remove the exclusion of equity compensation plans from the scope of SIC-12
  • Superseded by IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities, effective for annual periods beginning on or after 1 January 2013

Summary of SIC-12

SIC-12 addresses when a special purpose entity should be consolidated by a reporting enterprise under the consolidation principles in IAS 27. Under SIC-12, an entity must consolidate a special purpose entity ("SPE") when, in substance, the entity controls the SPE. The control of an SPE by an entity may be indicated if:

  • The SPE conducts its activities to meet the entity's specific needs
  • The entity has decision-making powers to obtain the majority of the benefits of the SPE's activities
  • The entity is able to obtain the majority of the benefits of the SPE's activities through an 'auto-pilot' mechanism
  • By having a right to the majority of the SPE's benefits, the entity is exposed to the SPE's business risks
  • The entity has the majority of residual interest in the SPE

Examples of SPEs include entities set up to effect a lease, a securitisation of financial assets, or R&D activities. The concept of control used in IAS 27 requires having the ability to direct or dominate decision making accompanied by the objective of obtaining benefits from the SPE's activities.

Some enterprises may also need to separately evaluate the topic of derecognition of assets, for example, related to assets transferred to an SPE. In some circumstances, such a transfer of assets may result in those assets being derecognised and accounted for as a sale. Even if the transfer qualifies as a sale, the provisions of IAS 27 and SIC-12 may mean that the enterprise should consolidate the SPE. SIC-12 does not address the circumstances in which sale treatment should apply for the reporting enterprise or the elimination of the consequences of such a sale upon consolidation.

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