Friday, January 18, 2013

IFRS 10 Consolidated Financial Statements


Objective
To introduce a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e., whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities). SIC-12 was, as a result, withdrawn.
Summary
• A subsidiary is an entity controlled by another entity, the parent.
• Control is based on whether an investor has
   1. power over the investee;
   2. exposure, or rights, to variable returns from its involvement with the investee; and
   3. the ability to use its power over the investee to affect the amount of the returns.
• IFRS 10 includes guidance on the assessment of control, including material on: protective rights; delegated power; de facto control; and de facto agency arrangements.
• Consolidated financial statements are financial statements of a group (parent and subsidiaries) presented as those  of a single economic entity.
• When a parent-subsidiary relationship exists, consolidated financial statements are required (subject to certain specified exceptions).
• Consolidated financial statements include all subsidiaries. No exemption for ‘temporary control’, ‘different lines of business’ or ’subsidiary that operates under severe longterm funds transfer restrictions’. However, if, on acquisition, a subsidiary meets the criteria to be classified as held for sale under IFRS 5, it is accounted for under that Standard.
• Intragroup balances, transactions, income and expenses are eliminated in full.
• All entities in the group use the same accounting policies and, if practicable, the same reporting date.
• Non-controlling interests (NCI) are reported in equity in the statement of financial position separately from the equity of the owners of the parent. Total comprehensive income is allocated between NCI and the owners of the
parent even if this results in the NCI having a deficit balance.
• Partial disposal of an investment in a subsidiary while control is retained is accounted for as an equity transaction with owners, and no gain or loss is recognised in profit or loss.
• Acquisition of a further ownership interest in a subsidiary after obtaining control is accounted for as an equity transaction and no gain, loss or adjustment to goodwill is recognised.
• Partial disposal of an investment in a subsidiary that results in loss of control triggers remeasurement of the residual holding to fair value. Any difference between fair value and carrying amount is a gain or loss on the
disposal, recognised in profit or loss. Thereafter, IAS 28, IAS 31 or IFRS 9/IAS 39 is applied, as appropriate, to the residual holding.
Effective date
Annual periods beginning on or after 1 January 2013. Earlier application permitted – but only if IFRSs 11 & 12 and IASs 27 & 28 (2011) are applied from the same date.

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