What are Consolidated Financial Statements in IFRS 10

What are Consolidated Financial Statements in IFRS 10 and the relations with IFRS 11 IFRS 12 IAS 27 IAS 28 and disclosures for consolidation and investments.

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IAS 27 Separate Financial Statements, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures and IFRS 12 Disclosures of Interest in Other Entities are all relating to or are otherwise intertwined with IFRS Types of Investments in (Consolidated) Financial Statements.

To better understand these 5 IFRS Standards and their interactions, co-relations, and maybe contradictions, here are all the important things summarised.

What are Consolidated Financial Statements in IFRS 10 What are Consolidated Financial Statements in IFRS 10 What are Consolidated Financial Statements in IFRS Read more

Overview IFRS 10 Consolidated Financial Statements

Overview IFRS 10 Consolidated Financial StatementsShort – To establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities Overview IFRS 10 Consolidated Financial Statements

Longer – IFRS 10 replaces the part of IAS 27 Consolidated and Separate Financial Statements that addresses accounting for subsidiaries on consolidation. What remains in IAS 27 after the implementation of IFRS 10 is the accounting treatment for subsidiaries, jointly controlled entities and associates in their separate financial statements. Contingent consideration Contingent consideration Contingent consideration Contingent consideration Contingent consideration

The aim of IFRS 10 is to establish a single control model that is applied to all entities including special purpose entities. The changes require those dealing with the implementation of IFRS 10 to exercise Read more

Combined financial statements

Combined financial statements: represents the combination of two or more legal entities or businesses that may or may not be part of the same group, but do not by themselves meet the definition of a group under IFRS 10 Consolidated Financial Statements – i.e. a parent and all of its subsidiaries. At a simplistic level, preparing combined financial statements involves adding together two or more legal entities and eliminating any inter-company transactions – e.g. intercompany profits, revenue and expenses, receivables and payables and equity (e.g. unrealised gains and losses).

Combined financial statements Combined financial statements Combined financial statements Combined financial statements Combined financial statements Combined financial statements Combined financial statements Combined financial statements Combined financial statements Combined financial statements Combined financial statements Combined financial statements

 

 

These activities are typically under common control, BUT do not comprise an existing legal entity or group and are presented as a single reporting entity.

For some combined financial … Read more

Introduction to Investment entities

Introduction to Investment entities is about information provision through financial statements to knowledgeable investors. For many years, preparers and investors in the investment entity industry felt that consolidating the financial statements of an investment entity and its investees does not provide the most useful information. Consolidation made it more difficult for investors to understand what they are most interested in – the value of the entity’s investments.

IFRS 10 provides an exception to consolidating particular subsidiaries for investment entities. The exception requires an investment entity to measure those subsidiaries at fair value through profit or loss in accordance with IFRS 9 in its consolidated and separate financial statements.

What is an investment entity?

The definition of an investment entityRead more

Whether the investor currently directs the activities

Whether the investor currently directs the activities Whether the investor currently directs the activities – In assessing control, an investor considers both substantive rights that it holds and substantive rights held by others. To be ‘substantive’, rights need to be exercisable when decisions about the relevant activities are required to be made, and the holder needs to have a practical ability to exercise those rights. Whether the investor currently directs the activities

Power is assessed with reference to the investee’s relevant activities, which are the activities that most significantly affect the returns of the investee. As part of its analysis, the investor considers the purpose and design of the investee, how decisions about the activities of the investee are made, and who has the current ability … Read more

The relevant activities of an investee

The relevant activities of an investee – Don’t get fooled, relevant activities for financial reporting and consolidation purposes does not mean that the activities of an investee are the same as the activities of other entities (parent entity and subsidiary entities) consolidated into that one group. No…….. it is about whether the activities significantly affect the investee’s returns. In other words can the parent entity earn from the relevant activities.

Let that be clear!!

IFRS 10 introduces the concept of ‘relevant activities’. This is a critical part of the model. This concept clarifies which aspects of an investee’s activities must be under the direction of an investor for that investor to have control for consolidation purposes. The relevant activities of an investee

Examples of activities that, … Read more

Securitisation

Securitisation is a financial process by which an owner of an asset, such as a portfolio of loans, receives cash upfront in exchange for the future cash flows from the asset without selling the asset in a normal contractual sales agreement. This process entails pooling the cash flows and selling them to investors via a special purpose vehicle (SPV), effectively turning ‘illiquid’ assets that cannot be sold easily into a ‘liquid’ asset that is tradable. If the income is ‘backed’ by underlying assets the securities are called ‘asset-backed securities’.

There are two main reasons for carrying out a securitisation:

  1. to obtain funding, because selling the cash flows allows the seller to bring forward the future income of the assets and
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Completely understand 1 consolidated and 2 separate financial statements

Completely understand 1 consolidated and 2 separate financial statements is a summary of the requirements of IFRS 10 Consolidated financial statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint ventures and IAS 27 Separate financial statements.

Major topics discussed are:

  • The single control model in IFRS 10 that applies to all entities (including ‘structured entities’ or ‘variable interest entities’ as they are referred to in US GAAP). The changes introduced by IFRS 10 require continuous management to exercise significant judgement to determine which entities are controlled, and therefore are required to be consolidated by a parent. IFRS 10 may periodically change which entities are within a group
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Control Structured entity with Credit-linked notes

Control Structured entity with Credit-linked notes provides a case regarding control through contractual arrangements in a Special Purpose Vehicle or better NO control. Following is a case on the assessment whether certain stakeholders in a transaction/structure have obtained control over a certain entity in the transaction in line with the requirements of IFRS 10 Consolidated financial statements. Only one stakeholder can be in control! [IFRS 10 B16] Or no stakeholder is in control. Or one stakeholder is in control and has to consolidate the investigated entity  in its consolidated financial statements. Here is the case. [glossary_exclude]Control Structured entity with Credit-linked notes[/glossary_exclude]

THE CASE – Assessing control of an issuer of credit-linked notes with limited activities and derivativesRead more

Consolidated financial statements

IFRS 10 Definition of consolidated financial statements

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

ParentAn entity that controls one or more entities.

The other types of financial statements are unconsolidated financial statements (or company accounts) and combined financial statements.

Single economic entity concept

The concept of a single economic entity is illustrated in the example below:

Example – Single economic entity concept

A subsidiary buys an asset from a third party for CU 100. It subsequently sells the asset on to its parent for CU 130. The subsidiary records a profit

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