International Financial
Reporting Standards (IFRS)
FACT SHEET September 2011
IAS 27 Consolidated and separate financial statements
(This fact sheet is based on the standard as at 1 January 2011.) Important note:
This fact sheet is based on the requirements of the International Financial Reporting Standards (IFRSs). In some jurisdictions, the IFRSs are adopted in their entirety, in other jurisdictions the individual IFRSs are amended. In some jurisdictions the requirements of a particular IFRS may not have been adopted. Consequently, users of the fact sheet in various jurisdictions should ascertain for themselves the relevance of the fact sheet to their particular jurisdiction. The application date included below is the effective date of the most recent changes made to the standard.
IASB application date (non-jurisdiction specific)
IAS 27 is applicable for annual reporting periods commencing on or after 1 July 2009.
SCOPE
IAS 27 shall be applied in the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent. This standard also applies in accounting for investments in subsidiaries, jointly controlled entities and associates when an entity elects, or is required by local regulations to present separate financial statements.
PRESCRIbEd ACCOunTIng TREATmEnT
IAS 27 requires the preparation and presentation of consolidated financial statements that include all subsidiaries under the control of a parent.
A parent need not present consolidated financial statements if and only if:
a. the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements
b. the parent’s debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over- the-counter market, including local and regional markets)
c. the parent did not file nor is in the process of filing, its financial statements with a securities commission or other regulatory organisation, for the purpose of issuing any class of instruments in a public market, and
d. the ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with IFRSs.
Consolidation procedures Consolidation involves:
• combining the financial statements of the parent and its subsidiaries line-by-line by adding together like items of assets, liabilities, equity, income and expenses
• elimination of the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary
• elimination in full of intragroup balances and transactions (e.g. profits and losses resulting from sale of inventory within the group) – IAS 12 Income taxes applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions.
International Financial
Reporting Standards (IFRS)
• identification of non-controlling interests in the profit or loss and net assets of consolidated subsidiaries for the reporting period. Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.
• Consolidated financial statements must be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If a member of the group uses dissimilar accounting policies, appropriate adjustments shall be made to the financial statements before consolidation.
COnTROL
Control over an entity is presumed to exist when the parent entity has direct or indirect ownership of more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control.
Control also exists when the parent owns half or less of the voting power of an entity when there is:
• power over more than half of the voting rights by virtue of an agreement with other investors
• power to govern the financial and operating policies of the entity under a statute or an agreement
• power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body, or
• power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.
Loss of control
If a parent loses control of a subsidiary, it:
a. derecognises the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost;
b. derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them);
c. recognises:
i. the fair value of the consideration received, if any, from the transaction, event or circumstances that resulted in the loss of control, and
ii. if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners, that distribution;
d. recognises any investment retained in the former subsidiary at its fair value at the date when control is lost;
e. reclassifies to profit or loss, or transfers directly to retained earnings if required in accordance with other IFRSs, the amounts identified in paragraph 35 and
f. recognises any resulting differences as a gain or loss in profit or loss attributable to the parent.
Changes in parent’s ownership interest in a subsidiary
Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners).
Parent and subsidiary reporting periods
IAS 27 requires the financial statements of the parent and its subsidiaries to have the same reporting period.
If the reporting periods of the parent and subsidiaries differ, the subsidiary must prepare additional financial statements for
International Financial
Reporting Standards (IFRS)
Separate financial statements of a parent
When a parent prepares separate financial statements, investments in subsidiaries, jointly controlled entities and associates they are to be accounted for either at cost or in accordance with IAS 39.
The accounting treatment must be consistently applied to each category of investments.
Investments in jointly controlled entities and associates that are accounted for in accordance with IAS 39 in the consolidated financial statements shall be accounted for in the same way in the parent entity’s separate financial statements.
An entity shall recognise a dividend from a subsidiary, jointly controlled entity or associate in profit or loss in its separate financial statements when its right to receive the dividend is established.
dISCLOSuRES
Refer Appendix 1 for a checklist to assist with IAS 27 disclosure requirements.
ImPORTAnT dEFInITIOnS
Consolidated financial statements
the financial statements of a group presented as those of a single economic entity.
Control the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
A group is a parent and all its subsidiaries.
non-controlling interest portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent.
Parent an entity that has one or more subsidiaries.
Separate financial statements
those presented by a parent, an investor in an associate or a venturer in a jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.
AuSTRALIAn SPECIFIC REquIREmEnTS
The Australian equivalent standard is AASB 127 which is applicable for annual reporting periods beginning on or after 1 July 2009.
The ultimate Australian parent shall present consolidated financial statements that consolidate its investments in subsidiaries in accordance with AASB 127 when either the parent or the group is a reporting entity or both the parent and the group are reporting entities.
AASB 127 has factors indicating control in the public sector (paragraph 17 onwards).
Additional Australian disclosures
In respect of not-for-profit public sector entities, where a group of entities is a reporting entity, but separate financial statements for the parent are not prepared, the notes to the consolidated financial statements need to disclose a list of significant
subsidiaries, including:
a. the name
b. country of incorporation or residence (where other than Australia)
c. proportion of ownership interest and, if different, proportion of voting power held.
International Financial
Reporting Standards (IFRS)
APPEndIx 1 – dISCLOSuRE CHECkLIST
This checklist can be used to review your financial statements – you should complete the Yes / No / N/A column about whether the requirement is included and provide an explanation for No answers to ensure the completeness of disclosures.
Yes / no / n/A
Explanation (if required) IAS 27: Consolidated and Separate Financial Statements – Applicable for financial statement periods beginning on or after 1 July 2009.
IAS 27.41 Have the following disclosures been made in the notes to the consolidated financial statements:
a. the nature of the relationship between the parent and a subsidiary when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power;
b. the reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or potential voting power of an investee does not constitute control;
c. the end of the reporting period of the financial statements of a subsidiary (if different from the parent) when they are used to prepare the
consolidated financial statements. The reasons for using a different date or period shall also be disclosed;
d. the nature and extent of any significant restrictions (e.g. resulting from borrowing arrangements or regulatory requirements) on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances;
e. a schedule that shows the effects of any changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control on the equity attributable to owners of the parent; and
f. if control of a subsidiary is lost, the parent shall disclose the gain or loss, if any, recognised in accordance with paragraph 34 and:
i. the portion of that gain or loss attributable to recognising any
investment retained in the former subsidiary at its fair value at the date when control is lost, and
ii. the line item(s) in the statement of comprehensive income in which the gain or loss is recognised (if not presented separately in the statement of comprehensive income).
IAS 27.42 If the parent prepares separate financial statements, and elects not to prepare consolidated financial statements, have those separate financial statements disclosed:
a. the fact that the statements are separate financial statements; that the exemption from consolidation has been used, the name and country of incorporation or residence of the entity whose consolidated financial statements that comply with International Financial Reporting Standards
International Financial
Reporting Standards (IFRS)
Yes / no / n/A
Explanation (if required) IAS 27.43 When a parent (other than a parent covered by paragraph 42), venturer with
an interest in a jointly controlled entity or an investor in an associate prepares separate financial statements, has the entity disclosed:
a. the fact that the statements are separate financial statements and the reasons why those statements are prepared if not required by law;
b. a list of significant investments in subsidiaries, jointly controlled entities and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held; and
c. a description of the method used to account for the investments listed under b.
OTHER mATTERS
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