Application of IFRS 12 – Definition of a Structured Entity

• A structured entity under IFRS 12 is one where control is not determined by voting rights, but rather by contractual arrangements, restrictions, or structured governance.
• In this case, Wesseh LTD is established by a sponsoring bank to hold mortgages and operates under a predetermined agreement.
• The operating agreement, rather than voting rights, dictates managerial decisions, meaning that decision-making power does not reside with shareholders through voting.

Justification for Wesseh LTD as a Structured Entity

• Control is exercised through contractual arrangements, not voting rights, which aligns with the IFRS 12 definition of a structured entity.
• The sponsoring bank dictates key decisions through its structured governance mechanism rather than traditional equity control.
• The assets (mortgages) are securitised, meaning the entity primarily functions as a financial vehicle rather than a typical business operation.

Conclusion:

Wesseh LTD meets the definition of a structured entity under IFRS 12 because its control is determined by the operational agreement rather than voting rights. This means it would require specific disclosures in financial statements under IFRS 12 to detail risks, exposures, and financial interests.