Consolidations • IAS 27 ‘Consolidated and Separate Financial Statements’ (and IFRS 10 update) • IAS 28 ‘Investments in Associates’ (incl. Update) • IAS 31 ‘Interest in Joint Ventures’ (and IFRS 11 Update) • IFRS 12 ‘Disclosure of Interests in Other Entities. • IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ 1
IAS 27 Consolidated and Separate Financial Statements Applied in the preparation and presentation of consolidated financial statements for a group, a group being a parent and its subsidiaries. Emphasis is on control and benefits from that control. In assessing control entities must consider options that are currently exercisable or convertible. Covers - Non-controlling interest - Inter-company balances - Reporting dates and accounting policies - Preference share dividends SIC-12 Consolidation - Special Purpose Entities (See slides covering IFRS 10 and the revised IAS 27)
IAS 27 Consolidated and Separate Financial Statements
• Only non-public entities can be exempt from preparing consolidated financial statements • Exclusion from consolidation based on temporary control requires a view to dispose of investment within 12 months of acquisition. NOW COVERED BY IFRS 5 • Must use uniform accounting policies
IAS 27 Consolidated and Separate Financial Statements •The standard applies to accounting for investments in subsidiaries, jointly controlled entities and associates in the separate financial statements of a parent, a venturer or investor; hence the change in the title. Such investments should be accounted for at cost or in line with IAS 39 or IFRS 9. (Annual Improvements to IFRS - ED August 2009 originally stated the alternative to cost is ‘at fair value through profit or loss’ but this is NOT contained in the final IFRS issued May 2010) Non-controlling interest should be presented within equity, separated from the parent shareholder’s equity. 4
IAS 27 Consolidated and Separate Financial Statements â€˘ The requirement to consolidate investments in subsidiaries applies to venture capital organisations, mutual funds, unit trusts and similar entities. â€˘ An entity is not permitted to exclude from consolidation an entity it continues to control simply because that entity is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the parent.
AMENDMENTS TO IAS 27 ( Issued January 2008) Effective from 1 July 2009 (earlier application is permitted) • Changes in interest without a change in control are recognised in equity • Gain or loss on disposal of controlling interest measured as difference between FV of proceeds plus FV of remaining investment and the parents share of carrying amount of net assets of subsidiary at date control is lost • Remaining non-controlling interest to be measured at FV • Two or more transactions affecting control may need to be treated as a single transaction • Losses to be allocated to non-controlling interest with guarantees or other support to be accounted for separately
IFRS 10 Consolidated Financial Statements The standard requires an entity (the parent) that controls one or more other entities (the subsidiaries) to present consolidated financial statements. The standard introduces a new definition of control which covers both the subsidiaries under the previous IAS 12 and the special entities previously covered by SIC 27. (Cont)
IFRS 10 Consolidated Financial Statements An investor controls an investee if and only if the investor has all the following: (a) power over the investee (including power to direct the activities that significantly affect the investeeâ€™s returns); (b) exposure, or rights, to variable returns from its involvement with the investee; and (c) the ability to use its power over the investee to affect the amount of the investors returns. The other parts of IFRS 10 are similar in their accounting requirements to the current IAS 27. 8
IAS 27 Separate Financial Statements
Covers accounting for investments in subsidiaries, joint ventures and associates when an entity elects, or is required by local regulations, to present separate financial statements. These separate financial statements present investments in subsidiaries, joint ventures and associates at cost or in accordance with IFRS 9.