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

IFRS 2 Fair value of equity instruments granted

IFRS 2 Fair value of equity instruments granted – Share-based payment transactions with employees are measured with reference to the fair value of the equity instruments granted (IFRS 2.11).

The fair value of a equity instrument granted is determined as follows (IFRS 2.16-17):

  • If market prices are available for the actual equity instruments granted – i.e. shares or share options with the same terms and conditions – then the estimate of fair value is based on these market prices. IFRS 2 Fair value of equity instruments granted
  • If market prices are not available for the equity instruments granted, then the fair value of equity instruments granted is estimated using a valuation technique.

IFRS 2 (IFRS Read more

High level overview IFRS 3 Business Combinations

HIGH LEVEL OVERVIEW IFRS 3 BUSINESS COMBINATIONS

Scope High level overview IFRS 3 Business Combinations

IFRS 3 does not apply to:

  • The accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.
  • Acquisition of an asset or group of assets that is not a business.
  • A combination of entities or businesses under common control.

Definition

A business combination is: A transaction or event in which acquirer obtains control over a business (e.g. acquisition of shares or net assets, legal mergers, reverse acquisitions).

Definition of a “Business”

A business is:

  • Integrated set of activities and assets
  • Capable of being conducted and managed to provide return
  • Returns include dividends and cost savings.

High level overview IFRS 3 Business Combinations High level overview 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

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 interest model) and … Read more

Significant influence

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 several ways, usually

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Shares

Shares are financial instruments. A share is a certificate evidencing the rights of the shareholder, to whom it is granted, in a company. Shares may take bearer or registered form. One share of stock represents a fraction of the share capital of a corporation.

Shares to be issued – Shares for which consideration has been received but which are not issued yet.

Ordinary sharesAn ordinary share is an equity instrument that is subordinate to all other classes of equity instruments.


Potential ordinary shares – A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares. Examples of potential ordinary shares include:

  • financial liabilities or equity instruments, including preference shares, that
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Synthetic products

Synthetic products are financial instruments. Synthetic products – essentially covered options and certificates – are characterised by their identical or similar profit and loss structures when compared with specific traditional financial instruments (shares or bonds). They result from the combination of two or several financial instruments in the same product. Basket certificates, based on a specific number of selected shares, are one typical example. Synthetic products

Synthetic products can be traded either on a stock-exchange or over-the-counter. Due to the important number of possible combinations, each synthetic product has its own risks. Synthetic products

However, generally, the risks associated to synthetic products are not always the same as the risks associated to the financial instruments they contain. Consequently, before … Read more

Directing relevant activities

Having identified an investee’s relevant activities, the next step is to determine how directing relevant activities has been organised. IFRS 10 breaks this down into the following two steps (although in practice these steps are normally combined with the identification of relevant activities): Directing relevant activities

  • understanding the decisions about relevant activities (see below first box) [IFRS 10 B12] Directing relevant activities
  • identifying rights that confer ability to direct those decisions (see below second box) [IFRS 10 B14-B17]. Directing relevant activities

IFRS 10 envisages two types of rights that may confer ability to direct these decisions (ie power): Directing relevant activities

  • voting rights granted by equity instruments for example, ordinary shares Directing relevant activities
  • contractual
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