IFRS 10 | Consolidated financial statements

1

Objective

The objective is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

2

Meeting the Objective

To meet the objective, the standard requires a parent to present consolidated financial statements, defines the principle of control as the basis for consolidation, sets out how to apply the principle of control, sets out accounting requirements for preparation, and defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity.

3

Exclusions

This standard does not deal with accounting requirements for business combinations and their effect on consolidation, including goodwill arising on a business combination (IFRS 3).

4

Scope

An entity that is a parent shall present consolidated financial statements. This standard applies to all entities, except that a parent need not present consolidated financial statements if it meets all the following conditions:

• it is a wholly-owned subsidiary or a partially-owned subsidiary and its other owners do not object;
• its debt or equity instruments are not traded in a public market;
• it did not file its financial statements with a regulatory organisation for the purpose of issuing instruments in a public market; and
• its ultimate or intermediate parent produces consolidated financial statements available for public use that comply with IFRSs.

4A

Benefit Plans

This standard does not apply to post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee Benefits applies.

4B

Investment Entity Exemption

A parent that is an investment entity shall not present consolidated financial statements if it is required to measure all of its subsidiaries at fair value through profit or loss.

5

Control Assessment

An investor determines whether it is a parent by assessing whether it controls the investee.

6

Control Definition

An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

7

Elements of Control

An investor controls an investee if and only if the investor has all the following: (a) power over the investee; (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 investor's returns.

8

Reassessment

An investor considers all facts and circumstances when assessing control and reassesses if facts indicate changes to one or more of the three elements of control.

9

Collective Control

Two or more investors collectively control an investee when they must act together to direct relevant activities. In such cases, no single investor controls the investee individually.

10

Power

An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities (activities that significantly affect the investee's returns).

11

Source of Power

Power arises from rights. It can be straightforward (voting rights) or complex (contractual arrangements).

12

Ability to Direct

An investor with the current ability to direct relevant activities has power even if rights have not yet been exercised. Evidence of directing activities can help determine power but is not conclusive in itself.

13

Unilateral Ability

If two or more investors have rights to direct different relevant activities, the investor with the ability to direct activities that most significantly affect returns has power.

14

Protective Rights

An investor can have power even if others have participation rights. However, an investor holding only protective rights does not have power and does not control the investee.

15

Returns

An investor is exposed, or has rights, to variable returns when the investor's returns have the potential to vary as a result of the investee's performance. Returns can be positive, negative, or both.

16

Sharing Returns

Although only one investor can control an investee, more than one party can share in the returns (e.g., non-controlling interests).

17

Link Between Power and Returns

An investor controls an investee if it has power, exposure to variable returns, and the ability to use its power to affect the amount of its returns.

18

Principal vs Agent

An investor with decision-making rights must determine if it is a principal or an agent. An agent does not control an investee when exercising delegated decision-making rights.

19

Accounting Requirements

A parent prepares consolidated financial statements using uniform accounting policies for like transactions and events in similar circumstances.

20

Consolidation Period

Consolidation begins from the date the investor obtains control and ceases when the investor loses control.

22

Non-Controlling Interests

A parent presents non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.

23

Changes in Ownership

Changes in a parent's ownership interest in a subsidiary that do not result in loss of control are equity transactions (transactions with owners in their capacity as owners).

25

Loss of Control

If a parent loses control of a subsidiary, it: (a) derecognises the assets and liabilities of the subsidiary; (b) recognises any investment retained in the former subsidiary at fair value and subsequently accounts for it under relevant IFRSs; and (c) recognises the gain or loss associated with the loss of control attributable to the former controlling interest.

27

Investment Entity Definition

A parent must determine if it is an investment entity. An investment entity is one that: (a) obtains funds from one or more investors for the purpose of providing investment management services; (b) commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and (c) measures and evaluates the performance of substantially all of its investments on a fair value basis.

28

Characteristics

Typical characteristics of an investment entity include having more than one investment, more than one investor, investors that are not related parties, and ownership interests in the form of equity or similar interests.

31

Consolidation Exception

Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries or apply IFRS 3 when it obtains control. Instead, it measures an investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9.

32

Service Subsidiaries

If an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing services that relate to the investment entity's investment activities, it shall consolidate that subsidiary.

33

Parent of Investment Entity

A parent of an investment entity shall consolidate all entities it controls, including those controlled through an investment entity subsidiary, unless the parent itself is an investment entity.

34

Appendix A: Defined Terms

• consolidated financial statements: The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.
• control of an investee: An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
• decision maker: An entity with decision-making rights that is either a principal or an agent for other parties.
• group: A parent and its subsidiaries.
• investment entity: An entity that: (a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; (b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and (c) measures and evaluates the performance of substantially all of its investments on a fair value basis.
• non-controlling interest: Equity in a subsidiary not attributable, directly or indirectly, to a parent.
• parent: An entity that controls one or more entities.
• power: Existing rights that give the current ability to direct the relevant activities.
• protective rights: Rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate.
• relevant activities: For the purpose of this IFRS, relevant activities are activities of the investee that significantly affect the investee's returns.
• removal rights: Rights to deprive the decision maker of its decision-making authority.
• subsidiary: An entity that is controlled by another entity.