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IFRS 10 –
CONSOLIDATED FINANCIAL STATEMENTS
DEFINITIONS
Consolidated financial statements
Are
the financial statements of a group in which the assets, liabilities, equity,
income, expenses and cashflows of the parent and its subsidiaries are presented
as those of a single economic entity.
Parent
Is
an entity that controls one or more entities (subsidiaries).
Subsidiary
Is
an entity that is controlled by another entity (Parent).
OBJECTIVE
The
objective of IFRS 10 is to establish principles for the presentation and
preparation of consolidated financial statements when an entity controls one or
more entities.
CONTROL
There
is control when
1.
an
investor has power
2.
is
exposed or has the right to variable returns with the involvement with the
investee.
3.
has
the ability to affect the returns on the investee.
NB: Control is obtained when an
entity acquires 50% + equity shares in another entity.
Exemptions of Control
Circumstances that an entity may not
have gained control but may be allowed to prepare consolidated financial
statements
1.
Power over more than one-half of the voting rights of the other entity by
virtue of an agreement with other investors; or
2.
Power to govern financial and operating policies of the other entity under a
statue or an agreement; or
3.
Power to appoint or remove the majority of the members of the board of
directors or equivalent governing body of the other entity; or
4.
Power to cast the majority of votes at meetings of the board of directors or
equivalent governing body of the other entity.
Accounting Requirement for the
Preparation of Consolidated Financial Statements
A
parent prepares consolidated financial statements using uniform accounting
policies for like transactions and other events in similar circumstances.
Exception to Accounting Requirement
A
parent need not present consolidated financial statements if and only if:
1.
the parent itself is a wholly owned subsidiary or a partially-owned subsidiary
and its owners, including those not otherwise entitled to vote, have been
informed about, and do not object to, the parent not preparing consolidated
financial statements
2.
the parent's debt or equity instruments are not traded in a public market
3.
the parent did not file its financial statements with a securities commission
or other regulatory organisation for the purpose of issuing any class of
instruments in a public market
4.
the ultimate parent company produces consolidated financial statements that
comply with IFRS Standards and are available for public use.
HOW TO CONSOLIDATE?
1. Determine
your control structure
2. Determine
your net assets of subsidiary
3. Determine
Goodwill
4. Determine
the Non-Controlling Interest (NCI) holdings
5. Prepare
your group retained earnings
6. Prepare
your consolidated financial statement using the consolidation procedures
a. Add
like items
b. Offset/
Eliminate:
i.
the carrying amount of the parent’s
investment in each subsidiary
ii. the
parent’s portion of equity of each subsidiary
c. Eliminate
intragroup transactions.
Investment entities consolidation
exemption
Investment
entity is an entity that:
1.
obtains funds from one or more investors for the purpose of providing those
investors with investment 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 basis.
Note:
Most
investment entities or firms cannot present
consolidated financial statements and instead, they need to measure an investment
in a subsidiary at fair value through profit or loss in line with IFRS 9 – Financial Instruments.