What are Consolidated Financial Statements about?

IFRS 10 Consolidated Financial StatementsConsolidated 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 have been purposely affected.

Purposely because improving the financial performance of a group of reporting entities was many times resulting in placing loss making or investment intensive operations of entities within the scope of consolidation outside the existing scope of consolidation by improperly excluding those entities from the existing group of consolidated entities. For example Enron was a perfect example of what could go wrong?

See What are Consolidated Financial Statements about?

https://en.wikipedia.org/wiki/Enron for the long story or directly to the scandal:

https://en.wikipedia.org/wiki/Enron#Misleading_financial_accounts

So the IFRS consolidation regulations are serious business and not just theory for inside preparers of Consolidated Financial Statements and their auditors. The CEO has to be involved in order to achieve good governance!

So let’s get to the core…… What are Consolidated Financial Statements about?

Assessing when one entity controls another (in other words, when a parent-subsidiary relationship exists) is essential to the preparation of financial statements in accordance with International Financial Reporting Standards (IFRS). The control assessment determines which entities are consolidated in a parent’s financial statements and therefore affects a group’s reported results, cash flows and financial position – and the activities that are ‘on’ and ‘off’ the group’s main statements. Under IFRS, this control assessment is accounted for in accordance with IFRS 10 Consolidated financial statements.

Applying the control definition

IFRS 10 includes additional guidance on the elements of the control definition and their interaction, including:

Follow the hyper-links to comprehensive explanations for each subject.

IFRS 10 includes guidance on more difficult control assessments including:

Follow the hyper-links to comprehensive explanations for each subject.

Preparation of Consolidated Financial Statements

IFRS 10 retains established principles on consolidation procedures, including

  • elimination of intra-group transactions and the parent’s investment,
  • uniform accounting policies, What are Consolidated Financial Statements about?
  • the need for financial statements used in consolidation to have the same reporting date,
  • the allocation of comprehensive income and equity to non-controlling interests,
  • accounting for changes in ownership interests without loss of control,
  • accounting for losing control of a subsidiary. What are Consolidated Financial Statements about?

Follow the hyper-links to comprehensive explanations for each subject.

Disclosures relating to Consolidated Financial Statements are not separated from disclosures for Company Financial Statements or Combined Financial Statements, because Consolidated Financial Statements (and Combined Financial Statements) are presented as if the entities included in the consolidation where one entity.

Off course the consolidation accounting principles and disclosures for consolidated and unconsolidated subsidiaries and/or assets held for sale have to be disclosed. Depending on local regulations in the parent entity’s country of establishment, when preparing Consolidated Financial Statements the Company Financial Statements may be:

  • completely ignored (ie not included), What are Consolidated Financial Statements about?
  • included in the notes in a condensed version, or What are Consolidated Financial Statements about?
  • included as separate Company Financial Statements as an enclosure.

IAS 27 Separate Financial Statements deals with some specific situations where a parent does not prepare Consolidated Financial Statements, these are include in other posts in this site (use the Category button).

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