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 the second focused on a qualitative analysis of power over significant activities and exposure to potentially significant losses or benefits (the variable interest model). Under US GAAP, all entities are first evaluated to determine whether they are variable interest entities (VIEs). If an entity is determined not to be a VIE, it is assessed on the basis of voting and other decision-making rights under the voting interest model.

Even in cases for which both US GAAP and IFRS look to voting rights to drive consolidation, differences can arise. Examples include cases in which de facto control exists (when a minority shareholder has the practical ability to exercise power unilaterally) and how the two frameworks address potential voting rights. As a result, careful analysis is required to identify any differences.

Differences in consolidation under US GAAP and IFRS may also arise when a subsidiary’s set of accounting policies differs from that of the parent. While under US GAAP it is acceptable to apply different accounting policies within a consolidation group to address issues relevant to certain specialized industries, exceptions to the requirement to consistently apply standards in a consolidated group do not exist under IFRS. US GAAP vs IFRS Consolidations at-a-glance

In addition, potential adjustments may occur in situations where a parent company has a fiscal year-end different from that of a consolidated subsidiary (and the subsidiary is consolidated on a lag). Under US GAAP, significant transactions in the gap period may require disclosure only, whereas IFRS may require recognition of transactions in the gap period in the consolidated financial statements. US GAAP vs IFRS Consolidations at-a-glance

Standards Reference

US GAAP1

IFRS2

ASC 205 Presentation of Financial Statements

ASC 323 Investments- Equity Method and Joint Ventures

ASC 323-10-15-8-11 Receivables

ASC 325-20 Investments-Other – Cost method Investments

ASC 810 Consolidation

ASC 810-10-25-1-14 Consolidation – Overall – Recognition

ASC 810-10-60-4 Consolidation – Relationships – Leases

IAS 1 Presentation of Financial Statements

IAS 27 Separate Financial Statements

IAS 28 Investments in Associates and Joint Ventures

IAS 36 Impairment of assets

IAS 39 Financial Instruments Recognition and Measurement

IFRS 9 Financial instruments

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

Note US GAAP vs IFRS Consolidations at-a-glance

The following discussion captures a number of the more significant GAAP differences. It is important to note that the discussion is not inclusive of all GAAP differences in this area.

Requirements to prepare consolidated financial statements

IFRS does not provide industry-specific exceptions to the requirement for consolidation of controlled entities, with the exception of specific guidance for investment entities. IFRS, in limited circumstances, may be more flexible with respect to the ability to issue nonconsolidated financial statements (i.e., parent-only, separate financial statements).

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

The guidance applies to legal structures.

There is a scope exception for registered money market funds and similar unregistered money market funds.

Industry-specific guidance precludes consolidation of controlled entities by certain types of organizations, such as investment companies and broker/dealers.

While the FASB and the IASB definitions of an investment company/entity are converged in most areas, there are several key differences (see Investment company/entity definition (in IFRS vs US GAAP Consolidation)). In addition, unlike the IASB standard, US GAAP retains the specialized investment company accounting in consolidation by a non-investment company parent.

Parent entities prepare consolidated financial statements that include all subsidiaries. An exemption applies when all of the following conditions apply:

Consolidated financial statements are presumed to be more meaningful and are required for SEC registrants.

With the exception of the items noted above, there are no exemptions for consolidating subsidiaries in general-purpose financial statements.

A subsidiary is not excluded from consolidation simply because the investor is a venture capital organization, mutual fund, unit trust, or similar entity. However, an exception is provided for an investment entity (as defined in Investment company/entity definition (in IFRS vs US GAAP Consolidation)) from consolidating its subsidiaries unless those subsidiaries are providing investment-related services. Instead, the investment entity measures those investments at fair value through profit or loss. The exception from consolidation only applies to the financial reporting of an investment entity. This exception does not apply to the financial reporting by a noninvestment entity, even if it is the parent of an investment entity.

When separate financial statements are prepared, investments in subsidiaries, joint ventures, and associates can be accounted for at either:

The same accounting is required for each category of investments.

However, investments in associates or joint ventures held by venture capital organizations, mutual funds, unit trusts or similar entities or investments entities accounted for at fair value in the consolidated financial statements should be measured at fair value in the separate financial statements.

Investment company/entity definition

The US GAAP and IFRS definitions of an investment entity are substantially converged; however, differences do exist. Investment companies measure their investments at fair value, including any investments in which they have a controlling financial interest. US GAAP vs IFRS Consolidations at-a-glance

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

An investment company is an entity

with the following fundamental

characteristics:

  • It is an entity that does both of the following:

    • Obtains funds from one or more investors and provides the investor(s) with investment management services

    • Commits to its investor(s) that’s it business purpose and only substantive activities are investing the funds solely for returns from capital appreciation, investment income, or both

  • The entity or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income

An investment company would also be expected to have all of the following typical characteristics:

  • It has more than one investment

  • It has more than one investor

  • It has investors that are not related parties of the parent and the investment manager

  • It has ownership interests in the form of equity or partnership interests

  • It manages substantially all of its investments on a fair value basis

An entity may still be considered an investment company if it does not exhibit one or more of the typical characteristics, depending on facts and circumstances.

  • All entities subject to the Investment Company Act of 1940 are investment companies.

The IFRS definition of an investment entity is substantially converged with the US GAAP definition with the following exceptions:

  • The IFRS definition requires an entity to measure and evaluate the performance of substantially all of its investments on a fair value basis

  • The IFRS definition does not provide for entities that are subject to certain regulatory requirements (such as the Investment Company Act of 1940) to qualify as investment entities without meeting the stated criteria

Consolidation model

Differences in consolidation under current US GAAP and IFRS can arise as a result of: US GAAP vs IFRS Consolidations at-a-glance

  • Differences in how economic benefits are evaluated when the consolidation assessment considers more than just voting rights (i.e., differences in methodology)

  • Specific differences or exceptions, such as: US GAAP vs IFRS Consolidations at-a-glance

    • The consideration of variable interests US GAAP vs IFRS Consolidations at-a-glance

    • De facto control US GAAP vs IFRS Consolidations at-a-glance

    • How potential voting rights are evaluated US GAAP vs IFRS Consolidations at-a-glance

    • Guidance related to de facto agents and related parties US GAAP vs IFRS Consolidations at-a-glance

    • Reconsideration events US GAAP vs IFRS Consolidations at-a-glance

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

All consolidation decisions are evaluated first under the VIE model. US GAAP requires an entity with a variable interest in a VIE to qualitatively assess the determination of the primary beneficiary of the VIE.

In applying the qualitative model, an entity is deemed to have a controlling financial interest if it meets both of the following criteria:

  • Power to direct activities of the VIE that most significantly impact the VIE’s economic performance (power criterion)

  • Obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE (losses/benefits criterion)

In assessing whether an enterprise has a controlling financial interest in an entity, it should consider the entity’s purpose and design, including the risks that the entity was designed to create and pass through to its variable interest holders.

IFRS focuses on the concept of control in determining whether a parent-subsidiary relationship exists.

An investor controls an investee when it has all of the following:

  • Power, through rights that give it the current ability, to direct the activities that significantly affect (the relevant activities that affect) the investee’s returns

  • Exposure, or rights, to variable returns from its involvement with the investee (returns must vary and can be positive, negative, or both)

  • The ability to use its power over the investee to affect the amount of the investor’s returns

In assessing control of an entity, an investor should consider the entity’s purpose and design to identify the relevant activities, how decisions about the relevant activities are made, who has the current ability to direct those activities, and who is exposed or has rights to the returns from those activities. Only substantive rights can provide power.

Only one enterprise, if any, is expected to be identified as the primary beneficiary of a VIE. Although more than one enterprise could meet the losses/benefits criterion, only one enterprise, if any, will have the power to direct the activities of a VIE that most significantly impact the entity’s economic performance.

Increased skepticism should be given to situations in which an enterprise’s economic interest in a VIE is disproportionately greater than its stated power to direct the activities of the VIE that most significantly impact the entity’s economic performance. As the level of disparity increases, the level of skepticism about an enterprise’s lack of power is expected to increase.

The greater an investor’s exposure to variability of returns, the greater its incentive to obtain rights to give it power (i.e., it is an indicator of power and is not by itself determinative of having power).

Recurring

All other entities are evaluated under the voting interest model. Unlike IFRS, only actual voting rights are considered. Under the voting interest model, control can be direct or indirect. In certain unusual circumstances, control may exist with less than 50 percent ownership, when contractually supported. The concept is referred to as effective control.

When an entity is controlled by voting rights, control is presumed to exist when a parent owns, directly or indirectly, more than 50 percent of an entity’s voting power. Control also exists when a parent owns half or less of the voting power but has legal or contractual rights to control either the majority of the entity’s voting power or the board of directors. Control may exist even in cases where an entity owns little or none of a structured equity. The application of the control concept requires, in each case, judgment in the context of all relevant factors.

Accounting policies and reporting periods

In relation to certain specialized industries, US GAAP allows more flexibility for use of different accounting policies within a single set of consolidated financial statements.

In the event of nonuniform reporting periods, the treatment of significant transactions in any gap period varies under the two frameworks, with the potential for earlier recognition under IFRS.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

Consolidated financial statements are prepared by using uniform accounting policies for all of the entities in a group. Limited exceptions exist when a subsidiary has specialized industry accounting principles. Retention of the specialized accounting policy in consolidation is permitted in such cases.

Consolidated financial statements are prepared by using uniform accounting policies for like transactions and events in similar circumstances for all of the entities in a group.

The consolidated financial statements of the parent and the subsidiary are usually drawn up at the same reporting date. However, the consolidation of subsidiary accounts can be drawn up at a different reporting date, provided the difference between the reporting dates is no more than three months. Recognition is given, by disclosure or adjustment, to the effects of intervening events that would materially affect consolidated financial statements.

The consolidated financial statements of the parent and the subsidiary are usually drawn up at the same reporting date. However, the subsidiary accounts as of a different reporting date can be consolidated, provided the difference between the reporting dates is no more than three months. Adjustments are made to the financial statements for significant transactions that occur in the gap period.

Equity method — Potential voting rights

The consideration of potential voting rights might lead to differences in whether an investor has significant influence. US GAAP vs IFRS Consolidations at-a-glance

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

Potential voting rights are generally not considered in the assessment of whether an investor has significant influence.

Potential voting rights are considered in determining whether the investor exerts significant influence over the investee. Potential voting rights are important in establishing whether the entity is an associate. Potential voting rights are generally not, however, considered in the measurement of the equity earnings recorded by the investor.

Definition and types of joint ventures

Differences in the definition or types of joint arrangements may result in different arrangements being considered joint ventures, which could affect reported figures, earnings, ratios, and covenants. US GAAP vs IFRS Consolidations at-a-glance

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

The term joint venture refers only to jointly controlled entities, where the arrangement is carried on through a separate entity.

A corporate joint venture is defined as a corporation owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.

Most joint venture arrangements give each venturer (investor) participating rights over the joint venture (with no single venturer having unilateral control), and each party sharing control must consent to the venture’s operating, investing, and financing decisions.

A joint arrangement is a contractual agreement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control of an economic activity.

Unanimous consent is required for the relevant activities (as discussed in Consolidation model (in IFRS vs US GAAP Consolidation)) of the parties sharing control, but not necessarily of all parties in the arrangement.

IFRS classifies joint arrangements into two types:

  • Joint operations, which give parties to the arrangement direct rights to the assets and obligations for the liabilities

  • Joint ventures, which give the parties rights to the net assets of the arrangement

Accounting for joint arrangements

Under IFRS, classification of joint arrangement as a joint venture or a joint operation determines the accounting by the investor. Under US GAAP, the proportional consolidation method is allowed for entities in certain industries. US GAAP vs IFRS Consolidations at-a-glance

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

Prior to determining the accounting model, an entity first assesses whether the joint venture is a VIE. If the joint venture is a VIE, the accounting model discussed earlier is applied. Joint ventures often have a variety of service, purchase, and/or sales agreements, as well as funding and other arrangements that may affect the entity’s status as a VIE. Equity interests are often split 50-50 or near 50-50, making nonequity interests (i.e., any variable interests) highly relevant in consolidation decisions. Careful consideration of all relevant contracts and governing documents is critical in the determination of whether a joint venture is within the scope of the variable interest model and, if so, whether consolidation is required.

The classification of a joint arrangement as a joint venture or a joint operation determines the investor’s accounting. An investor in a joint venture must account for its interest using the equity method in accordance with IAS 28.

An investor in a joint operation accounts for its share of assets, liabilities, income and expenses based on its direct rights and obligations.

If the joint operation constitutes a business, the investor must apply the relevant principles on business combination accounting contained in IFRS 3, Business Combinations, and other standards, and disclose the related information required under those standards.

If the joint venture is not a VIE, venturers apply the equity method to recognize the investment in a jointly controlled entity. Proportionate consolidation is generally not permitted except for unincorporated entities operating in certain industries. A full understanding of the rights and responsibilities conveyed in management, shareholder, and other governing documents is necessary.

A joint operator that increases its interest in a joint operation that constitutes a business should not remeasure previously held interests in the joint operation when joint control is retained. Similarly, when an entity that has an interest (but not joint control) obtains joint control, previously held interests are not remeasured.

Accounting for contributions to a jointly controlled entity

Differences exist in the accounting for contributions to a jointly controlled entity under IFRS and US GAAP.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

If a joint venture gains control of the contributed assets, contributions to joint ventures will be measured at fair value at the venturer level in accordance with ASC 610-20, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets.

When an investor contributes a subsidiary or group of assets that constitute a business to a joint venture, the investor should apply the deconsolidation and derecognition guidance in ASC 810-10-40 and record any consideration received for its contribution at fair value (including its interest in the joint venture). This generally results in a gain or loss on the contribution.

A venturer that contributes non monetary assets—such as shares; property, plant, and equipment; or intangible assets—to a jointly controlled entity in exchange for an equity interest in the jointly controlled entity generally recognizes in its consolidated income statement the portion of the gain or loss attributable to the equity interests of the other venturers, except when:

  • The significant risks and rewards of ownership of the contributed assets have not been transferred to the jointly controlled entity,

  • The gain or loss on the assets contributed cannot be measured reliably, or

  • The contribution transaction lacks commercial substance.

When the non monetary asset is a business, a policy choice is currently available for full or partial gain or loss recognition.

IAS 28 provides an exception to the recognition of gains or losses only when the transaction lacks commercial substance.

Exemption from applying the equity method

An exemption from applying the equity method of accounting (i.e., use of the fair value through profit or loss option) is available to a broader group of entities under US GAAP.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

Equity method investments are considered financial assets and therefore are eligible for the fair value accounting option. An entity can measure an investment in associates or joint ventures at fair value through profit or loss, regardless of whether it is a venture capital or similar organization.

An entity can only elect fair value through profit or loss accounting for equity method investments held by venture capital organizations, mutual funds, unit trusts, and similar entities, including investment-linked insurance funds. If an associate or joint venture is an investment entity, the equity method of accounting is applied by either (1) recording the results of the investment entity that are at fair value or (2) undoing the fair value measurements of the investment entity. In other instances, an entity must apply the equity method to its investments in associates and joint ventures unless it is exempt from preparing consolidated financial statements.

Equity method—classification as held for sale

Application of the equity method of accounting may cease before significant influence is lost under IFRS (but not under US GAAP).

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

Under US GAAP, if an equity method investments is classified as held for sale, an investor applies equity method accounting until significant influence is lost.

If an equity method investment meets the held for sale criteria in accordance with IFRS 5, an investor records the investment at the lower of its (1) fair value less costs to sell or (2) carrying amount as of the date the investment is classified as held for sale.

An equity method investment can be classified as held for sale in accordance with ASC 205-20-45-1E only if it meets the definition of a discontinued operation.

Equity method investments are included in the scope of IFRS 5, which includes criteria for held for sale classification and discontinued operations. Under IFRS 5, it is possible for an equity method investment to be classified as held for sale even if the discontinued operations criteria are not met.

Equity method—acquisition date excess of investor’s share of fair value over cost

IFRS may allow for day one gain recognition (whereas US GAAP would not).

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

Any acquisition date excess of the investor’s share of the net fair value of the associate’s identifiable assets and liabilities over the cost of the investment is included in the basis differences and is amortized—if appropriate—over the underlying asset’s useful life. If amortization is not appropriate, the difference is included in the gain/loss upon ultimate disposition of the investment.

Any acquisition date excess of the investor’s share of net fair value of the associates’ identifiable assets and liabilities over the cost of the investment is recognized as income in the period in which the investment is acquired.

Equity method—conforming accounting policies

A greater degree of conformity is required under IFRS.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

The equity investee’s accounting policies do not have to conform to the investor’s accounting policies if the investee follows an acceptable alternative US GAAP treatment.

An investor’s financial statements are prepared using uniform accounting policies for similar transactions and events. This also applies to equity method investees.

Equity method—impairment

Impairment losses may be recognized earlier, and potentially may be reversed, under IFRS.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

An investor should determine whether a loss in the fair value of an investment below its carrying value is a temporary decline. If it is other than temporary, the investor calculates an impairment as the excess of the investment’s carrying amount over the fair value.

Reversals of impairments on equity method investments are prohibited.

An investor should assess whether objective indicators of impairment exist based on the “loss event” criteria in IAS 28. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is considered objective evidence of impairment. If there are objective indicators that the investment may be impaired, the investment is tested for impairment in accordance with IAS 36.

Impairments of equity method investments can be reversed in accordance with IAS 36.

Equity method—losses in excess of an investor’s interest

Losses may be recognized earlier under US GAAP.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

Even without a legal or constructive obligation to fund losses, a loss in excess of the investment amount (i.e., a negative or liability investment balance) should be recognized when the imminent return to profitable operations by an investee appears to be assured.

Unless an entity has incurred a legal or constructive obligation, losses in excess of the investment are not recognized. The concept of an imminent return to profitable operations does not exist under IFRS.

US GAAP does not contain detailed guidance on how to record profits or losses under the equity method when an investor also has other investments in the investee that are not subject to the equity method of accounting.

IFRS contains detailed guidance on how to record profits or losses under the equity method when an investor also has other investments in the investee that are not subject to the equity method of accounting (e.g., debt or preferred shares). Therefore, differences could arise.

Equity method—loss of significant influence or joint control

The potential for greater earnings volatility exists under IFRS.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

If an investment no longer qualifies for equity method accounting (for example, due to a decrease in the level of ownership), the investment’s initial basis is the previous carrying amount of the investment.

Under ASC 321, the cost method is not permitted. An initial gain or loss is generally recorded to recognize the investment at fair value and the investment is subsequently measured at fair value with gains or losses recorded to earnings. If the investment does not have a readily determinable fair value, a practical expedient can be elected to measure it at cost minus impairment, adjusted for changes for observable transactions. It is currently unclear whether the transaction resulting in loss of significant influence should be considered an observable transaction under this expedient. This is currently an active issue with the FASB Emerging Issues Task Force.

If an entity loses significant influence or joint control over an equity method investment and the retained interest is a financial asset, the entity should measure the retained interest at fair value. The resultant gain or loss is recognized in the income statement.

In contrast, if an investment in an associate becomes an investment in a joint venture, or vice versa, such that the equity method of accounting continues to apply, no gain or loss is recognized in the income statement.

Investments in qualified affordable housing projects

US GAAP permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

An investor that owns a passive investment in limited liability entities that manage or invest in qualified affordable housing projects can use the proportional amortization method if certain conditions are met.

Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax benefits received over the period that the investor expects to receive the tax credits and other benefits.

Both the amortization expense determined under the proportional amortization method and the tax benefits received will be recognized as a component of income taxes.

Use of the proportional amortization method for investments that meet the requisite conditions is an accounting policy election. Once elected, the proportional amortization method should be applied to all qualifying investments.

IFRS does not contain any guidance specific to accounting for investments in qualified affordable housing projects.

Money back

Disclosures

US GAAP and IFRS both require extensive disclosure about an entity’s involvement in VIEs/structured entities, including those that are not consolidated.

US GAAP vs IFRS Consolidations at-a-glance US GAAP vs IFRS Consolidations at-a-glance

US GAAP

IFRS

Guidance applies to both nonpublic and public enterprises.

The principal objectives of VIE disclosures are to provide financial statement users with an understanding of the following:

  • Significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement in a VIE

  • The nature of restrictions on a consolidated VIE’s assets and on the settlement of its liabilities reported by an enterprise in its statement of financial position, including the carrying amounts of such assets and liabilities

  • The nature of, and changes in, the risks associated with an enterprise’s involvement with the VIE

  • How an enterprise’s involvement with the VIE affects the enterprise’s financial position, financial performance, and cash flows

The level of disclosure to achieve these objectives may depend on the facts and circumstances surrounding the VIE and the enterprise’s interest in that entity.

Additional detailed disclosure guidance is provided for meeting the objectives described above.

Specific disclosures are required for (1) a primary beneficiary of a VIE and (2) an entity that holds a variable interest in a VIE (but is not the primary beneficiary).

US GAAP vs IFRS Consolidations at-a-glance

IFRS has disclosure requirements for interests in subsidiaries, joint arrangements, associates, and unconsolidated structured entities which include the following:

  • Significant judgments and assumptions in determining if an investor has control or joint control over another entity, and the type of joint arrangement

  • The composition of the group and interests that non-controlling interests have in the group’s activities and cash flows

  • The nature and extent of any significant restrictions on the ability of the investor to access or use assets, and settle liabilities

  • The nature and extent of an investor’s interest in unconsolidated structured entities

  • The nature of, and changes in, the risks associated with an investor’s interest in consolidated and unconsolidated structured entities□ The nature, extent and financial effects of an investors’ interests in joint arrangements and associates, and the nature of the risks associated with those interests

  • The consequences of changes in ownership interest of a subsidiary that do not result in loss of control

  • The consequences of a loss of control of a subsidiary during the period

An entity is required to consider the level of detail necessary to satisfy the disclosure objectives of enabling users to evaluate the nature and associated risks of its interests, and the effects of those interests on its financial statements.

Additional detailed disclosure guidance is provided for meeting the objectives described above.

If control of a subsidiary is lost, the parent shall disclose the gain or loss, if any, and:

  • Portion of that gain or loss attributable to recognizing any investment retained in former subsidiary at its fair value at date when control is lost

  • Line item(s) in the statement of comprehensive income in which the gain or loss is recognized (if not presented separately in the statement of comprehensive income)

Additional disclosures are required in instances when separate financial statements are prepared for a parent that elects not to prepare consolidated financial statements, or when a parent, venturer with an interest in a jointly controlled entity, or investor in an associate prepares separate financial statements.

US GAAP vs IFRS Consolidations at-a-glance 

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