IFRS 10 Cases of no consolidation requirements

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IFRS 10 Cases of no consolidation requirements

This requires all parent entities to present consolidated financial statements, other than:IFRS 10 Cases of no consolidation requirements

IFRS 10 Cases of no consolidation requirements

Conditions for a parent entity to be exempt from consolidation [IFRS 10 4]

A parent is not required to present consolidated financial statements if it meets all the following conditions:

  • it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements
  • its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets)
  • it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and
  • its ultimate or any intermediate parent produces financial statements that are available for public use and comply with IFRSs, in which subsidiaries are consolidated or measured at fair value through profit or loss in accordance with this IFRS.
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In practice, questions do arise on whether the consolidation exemption is available in particular circumstances. The following examples provide guidance on three common issues: Consolidation exceptions and exemptions

Example – Ultimate parent with different year-end Discount ratesIFRS 10 Cases of no consolidation requirements

Entity IP1 is an intermediate parent company, wholly owned by Entity UP1 (the ultimate parent entity). Entity IP1’s reporting date is 30 September and Entity UP1’s is 31 December. Assuming the stated conditions in IFRS 10 4 are met, does the difference in reporting date preclude use of the consolidation exemption?

Analysis:

No. The consolidation exemption does not require the ultimate or higher level parent to have the same reporting date as the reporting entity seeking to apply the exemption. Accordingly, Entity IP1 meets the conditions for exemption from presenting consolidated financial statements if the other stated conditions in IFRS 10 4 are met.

Example – Immaterial intermediate parent IFRS 10 Cases of no consolidation requirements

Entity IP2 is an intermediate parent company, wholly owned by Entity UP2 (the ultimate parent entity). From Entity UP2’s perspective, Entity IP2 and its subsidiaries are immaterial. For this reason, Entity UP2 does not actually consolidate these entities. Is use of the consolidation exemption by Entity IP2 possible in this situation?

Analysis:

In our view, the consolidation exemption is still available in these circumstances (assuming the stated conditions in IFRS 10 4 are met). This is because Entity UP2’s consolidated financial statements can still assert compliance with IFRSs if genuinely immaterial subsidiaries have been omitted from the consolidation. However, great care should be taken in assessing whether the effect of not consolidating really is immaterial.

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Example – Ultimate parent’s financial statements not yet available Consolidation exceptions and exemptions

Entity IP3 (domiciled in Country X) is an intermediate parent company, wholly owned by Entity UP3 (which is domiciled in Country Y). Both have a reporting date of 31 December. However, Entity IP3’s filing deadline (in accordance with the law in Country X) is three months after year-end, and Entity UP3’s (in accordance with the law in Country Y) is six months. Both entities file financial statements on the legal deadline, so Entity UP3’s consolidated financial statements are not available for public use when Entity IP3’s are filed. Does this preclude use of the consolidation exemption by Entity IP3?

Analysis:

In our view, the consolidation exemption is not dependent on the higher level consolidated financial statements for the same accounting period being available on or before the date of approval or filing of the intermediate parent’s financial statements. The requirement is instead that the higher level parent produces consolidated financial statements that will be publicly available in due course.

Continue reading: Assessment of investment entities

Also read: IFRS Community – Consolidation rules

IFRS 10 Cases of no consolidation requirements IFRS 10 Cases of no consolidation requirements IFRS 10 Cases of no consolidation requirements IFRS 10 Cases of no consolidation requirements IFRS 10 Cases of no consolidation requirements IFRS 10 Cases of no consolidation requirements IFRS 10 Cases of no consolidation requirements IFRS 10 Cases of no consolidation requirements

IFRS 10 Cases of no consolidation requirements

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IFRS 10 Cases of no consolidation requirements

2 thoughts on “IFRS 10 Cases of no consolidation requirements”

  1. how r u IFRS team ?
    for the example number 2 above from my point of view the consolidation exemption is not applicable as the ultimate parent considered the IP2 and its subsidiaries are immaterial , and in such case the investors that investing in IP2 will not see their investment in a consolidated form that’s why IP2 has to make his own consolidation , if i’m wrong kindly tell me .

    for example 3 i didn’t understand your answer and i hope if you can clarify more.

    thanks for this fantastic website

    Reply
    • Hi Hany,

      People are interested, that is why this website exists. And here are some answers,

      Example – Immaterial intermediate parent
      You are right, if IP2 is not consolidated into UP2 it has to consolidate its own group under IFRS 10. So many times it will not make sense to use this consolidation exemption. But there might be reasons why this exemption is still a (temporary) solution to a problem (for example IP 2 and its subsidiaries (or the most important subsidiary etcetera) not able to deliver financial statements timely).

      Keep in mind IFRS has to try to provide generic standards to cover every possibility. This provides a possibility to comply with IFRS but without excessive costs.

      Example – Ultimate parent’s financial statements not yet available

      The key question is, can IP3 use the IFRS consolidation exemption when its parent UP3, in which IP3 and its subsidiaries will be consolidated, files these consolidated financial statements three months later than IP3 is required to do under its local laws.

      Stakeholders of IP3 could argue IP3 is not compliant with the filing deadline in Country X. IP3 then can argue that under IFRS 10 it is allowed to do so (because IFRS is authoritative around the world), however local laws (or court decisions) could force IP3 to file consolidated financial statements. IFRS cannot overrule local laws, but can provide entities with a balanced (widely acknowledged) answer to explain their position of what they did.

      Thanks for the compliments

      If there is anything more let me know.

      Kind regards,

      Henk

      Reply

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