Overview IFRS 10 Consolidated Financial Statements

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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 Read 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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US GAAP vs IFRS Consolidations at-a-glance

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US GAAP vs IFRS Consolidations at-a-glance – IFRS provides indicators of control, some of which individually determine the need to consolidate. However, where control is not apparent, consolidation is based on an overall assessment of all of the relevant facts, including the allocation of risks and benefits between the parties. The indicators provided under IFRS help the reporting entity in making that assessment. Consolidation in financial statements is required under IFRS when an entity is exposed to variable returns from another entity and has the ability to affect those returns through its power over the other entity. US GAAP vs IFRS Consolidations at-a-glance

US GAAP has a two-tier consolidation model: one focused on voting rights (the voting … Read more

Investments in Associates 1st and best read

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Investments in Associates 1st and best read – Just as a starter, two definitions!

Associate: An entity, including an unincorporated entity such as a partnership, over which an investor has significant influence and which is neither a subsidiary nor an interest in a joint venture. Investments in Associates 1st and best read

Significant influence: The power to participate in the financial and operating policy decisions of the investee but it is not control or joint control over those policies. Investments in Associates 1st and best read

What are investments in associates?

A holding of 20% or more of the voting power (directly or through subsidiaries) will indicate significant influence unless it can be clearly demonstrated … Read more

Consolidation Assess control over an investment

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Consolidation Assess control over an investment IFRS 10 Consolidation Assess control over an investment is the key to consolidate a investee entity or not. Whether a subsidiary or a consolidated structured entity.

Voting rights in subsidiaries

In many cases, when decision-making is controlled by voting rights, and those voting rights entitle an entity to returns (e.g., voting shares), it is clear that whoever holds a majority of those voting rights controls the investee. However, in other cases (such as for structured entities, or when there are potential voting rights, or less than a majority of voting rights), it may not be so clear. Consolidation Assess control over an investment

Contractual relations for consolidated structured entities

In those instances, further analysis is needed … Read more

Allocation between Controlling and Non-controlling interest

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Allocation between Controlling and Non-controlling interest Allocation between Controlling and Non-controlling interest is about consolidation, obtain control over but not hold 100% in another entity/subsidiary.

When a parent entity first obtains control over another entity, it recognises any non-controlling interest in the new subsidiary’s net assets as illustrated in the example below. In subsequent periods the parent allocates to the non-controlling interest its proportion of:

  • profit or loss Allocation between Controlling and Non-controlling interest
  • each component of other comprehensive income [IFRS 10 B94].

i.e. the entity’s profit or loss in consolidated profit or loss of the parent and the entity’s other comprehensive income in consolidated other comprehensive income of the parent. Allocation between Controlling and Non-controlling interest

The proportion allocated to … Read more

Control without a majority of voting rights

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Control without a majority of voting rights Control without a majority of voting rights is a more special case of structuring the investments of investors in companies. IFRS 10 confirms that an investor with the majority of an investee’s voting rights controls an investee in most circumstances. In the absence of other relevant factors the majority vote holder has control if: Control without a majority of voting rights

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Potential voting rights

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Potential voting rights Potential voting rights – An investor may hold instruments that (if exercised or converted), give the investor power to direct the relevant activities. These are called ‘potential voting rights’ and may be held through ownership of the following types of instrument:

  • share options and warrants Potential voting rights
  • convertible bonds Potential voting rights
  • convertible preference shares. Potential voting rights

Potential voting rights can contribute to control of an investee in combination with current voting rights, or even confer control on their own. However, IFRS 10 requires an assessment to determine whether potential voting rights are substantive. IFRS 10 has no bright lines and so judgment will be required.

IFRS 10’s ‘substantive’ assessment takes into account both:… Read more

What are Consolidated Financial Statements about?

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What are Consolidated Financial Statements about What are Consolidated Financial Statements about – Consolidated Financial Statements are the financial statements of a group of entities in which the assets, liabilities, equity, income, expenses and cash flows of the parent entity and its subsidiary entities are presented as those of a single economic entity.

IFRS 10 applies both to traditional entities and to special purpose (or structured) entities and replaced the corresponding requirements of both IAS 27  Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities.

In mainstream financial reporting IFRS 10 has not affected the scope of consolidation involving control through ownership of a majority of the voting power in an investee. However, more complex and borderline control assessments … Read more

Significant influence

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Significant influence is a term used in IFRS regarding investments in joint ventures and associates as well as related parties.

Significant influence (relating to interests in joint ventures)

The power to participate in the financial and operating policy decisions of an activity but is not control or joint control over those policies.

Significant influence (relating to investments in associates)

The power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

Significant influence (relating to related party transactions)

The power to participate in the financial and operating policy decisions of an entity, but not control those policies. Significant influence may be exercised in

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