IFRS Standard: IFRS 10 Consolidated Financial Statements

International Financial Reporting Standard 10 Consolidated Financial Statements (IFRS 10) is set out in paragraphs 1–33 and Appendices A–D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. Definitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 10 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

IFRS 10 Objective Scope

Objective

1 The objective of this IFRS is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

Meeting the objective

2 To meet the objective in paragraph 1, this IFRS

  1. requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements;
  2. defines the principle of control, and establishes control as the basis for consolidation;
  3. sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee;
  4. sets out the accounting requirements for the preparation of consolidated financial statements; and
  5. defines an investment entity and sets out an exception
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IFRS 10 Control

5 An investor, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.

6 An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

7 Thus, an investor controls an investee if and only if the investor has all the following:

  1. power over the investee (see paragraphs 10–14);
  2. exposure, or rights, to variable returns from its involvement with the investee (see paragraphs 15 and 16); and
  3. the ability to use its power over the investee to affect the
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IFRS 10 Accounting requirements

19 A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.

20 Consolidation of an investee shall begin from the date the investor obtains control of the investee and cease when the investor loses control of the investee.

21 Paragraphs B86–B93 set out guidance for the preparation of consolidated financial statements.

Non-controlling interests

22 A parent shall present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.

23 Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (ie transactions with owners in … Read more

IFRS 10 Determining whether an entity is an investment entity

27 A parent shall determine whether it is an investment entity. An investment entity is an entity that:

  1. obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
  2. commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
  3. measures and evaluates the performance of substantially all of its investments on a fair value basis.

Paragraphs B85A–B85M provide related application guidance.

28 In assessing whether it meets the definition described in paragraph 27, an entity shall consider whether it has the following typical characteristics of an investment entity:

  1. it has more than one investment (see paragraphs B85O–B85P);
  2. it
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IFRS 10 Investment entities: exception to consolidation

Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries or apply IFRS 3 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9.^1
^1 Paragraph C7 of IFRS 10 Consolidated Financial Statements states “If an entity applies this IFRS but does not yet apply IFRS 9, any reference in this IFRS to IFRS 9 shall be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement.”

32 Notwithstanding the requirement in paragraph 31, if an investment entity has a subsidiary that is not itself an investment entity and whose main … Read more

IFRS 10 Application guidance

Appendix B

Application guidance

This appendix is an integral part of the IFRS. It describes the application of paragraphs 1–33 and has the same authority as the other parts of the IFRS.

B1 The examples in this appendix portray hypothetical situations. Although some aspects of the examples may be present in actual fact patterns, all facts and circumstances of a particular fact pattern would need to be evaluated when applying IFRS 10.Read more

IFRS 10 Assessing control

B2 To determine whether it controls an investee an investor shall assess whether it has all the following:

  1. power over the investee;
  2. exposure, or rights, to variable returns from its involvement with the investee; and
  3. the ability to use its power over the investee to affect the amount of the investor’s returns.

B3 Consideration of the following factors may assist in making that determination:

  1. the purpose and design of the investee (see paragraphs B5–B8);
  2. what the relevant activities are and how decisions about those activities are made (see paragraphs B11–B13);
  3. whether the rights of the investor give it the current ability to direct the relevant activities (see paragraphs B14–B54);
  4. whether the investor is exposed, or has rights, to variable returns
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IFRS 10 Is an entity an investment entity?

Determining whether an entity is an investment entity

B85A An entity shall consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design. An entity that possesses the three elements of the definition of an investment entity set out in paragraph 27 is an investment entity. Paragraphs B85B–B85M describe the elements of the definition in more detail.

Business purpose

B85B The definition of an investment entity requires that the purpose of the entity is to invest solely for capital appreciation, investment income (such as dividends, interest or rental income), or both. Documents that indicate what the entity’s investment objectives are, such as the entity’s offering memorandum, publications distributed by the entity and Read more

IFRS 10 Accounting requirements

Consolidation procedures

B86 Consolidated financial statements:

  1. combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries.
  2. offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary (IFRS 3 explains how to account for any related goodwill).
  3. eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full). Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. IAS
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IFRS 10 Change in investment entity status

Accounting for a change in investment entity status

B100 When an entity ceases to be an investment entity, it shall apply IFRS 3 to any subsidiary that was previously measured at fair value through profit or loss in accordance with paragraph 31. The date of the change of status shall be the deemed acquisition date. The fair value of the subsidiary at the deemed acquisition date shall represent the transferred deemed consideration when measuring any goodwill or gain from a bargain purchase that arises from the deemed acquisition. All subsidiaries shall be consolidated in accordance with paragraphs 19–24 of this IFRS from the date of change of status.

B101 When an entity becomes an investment entity, it shall cease … Read more