1. Overview
IFRS 10 Consolidated Financial Statements establishes principles for the preparation and presentation of consolidated financial statements when an entity controls one or more other entities. Specifically:
- Requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements;
- Defines the principle of control and establishes control as the basis for consolidation of financial statements;
- Prescribes how to apply the principle of control to determine whether an investor controls an investee and, therefore, must consolidate the investee;
- Specifies the accounting requirements for the preparation of consolidated financial statements; and
- Defines an investment entity and sets out the requirements for exemption from consolidating particular subsidiaries of an investment entity.
IFRS 10 does not address the accounting requirements for business combinations and the impact of a business combination on the preparation of consolidated financial statements, including goodwill arising from a business combination (which are governed by IFRS 3 – Business Combinations).
2. Transition Issues
| Content | IFRS | VAS |
| IFRS 10 vs. VAS 25 – Consolidated Financial Statements | ||
| Control
| An investor controls an investee when, and only when, all the following conditions are met: (a) Has power over the investee; (b) Is exposed, or has rights, to variable returns from its involvement with the investee; and (c) Has the ability to use its power over the investee to affect the amount of the investor’s returns.
| The parent’s control over the subsidiary is determined when the parent holds more than 50% of the voting rights in the subsidiary (the parent may directly own the subsidiary or indirectly own it through another subsidiary), except in specific cases where it is clearly determined that ownership does not confer control. In the following situations, control may still be exercised even if the parent holds less than 50% of the voting rights in the subsidiary: (a) Other investors have contractually agreed to give the parent more than 50% of the voting rights; (b) The parent has the right to govern the financial and operating policies under a statute or agreement; (c) The parent has the power to appoint or remove the majority of the members of the Board of Directors or equivalent governing body; (d) The parent has the power to cast the majority of votes at meetings of the Board of Directors or equivalent governing body. |
| Identification of Investment Entity | The parent must determine whether it qualifies as an investment entity. An investment entity is an entity that: (a) Obtains funds from one or more investors for the purpose of providing those investors with investment management services; (b) Commits to its investors that its sole business purpose is to invest funds solely for returns from capital appreciation, investment income (such as dividends), or both; and (c) Measures and evaluates the performance of substantially all of its investments on a fair value basis. | Not addressed. |
| Exemption from Consolidation for Investment Entities | An investment entity is not required to consolidate its subsidiaries or apply IFRS 3 when it gains control over other entities. Instead, the investment entity must measure the investment in its subsidiaries at fair value through profit or loss as prescribed in IFRS 9. If the investment entity has a subsidiary that is itself not an investment entity and whose purpose and principal activities are to provide services related to the investment activities of the investment entity, the investment entity shall consolidate that subsidiary in accordance with paragraphs 19 to 26 of this standard and apply IFRS 3 when acquiring any such subsidiary. The parent of an investment entity shall consolidate all entities it controls, including those controlled through an investment entity subsidiary, unless the parent itself is also an investment entity. | Not addressed. |
| Exemption from Preparing Consolidated Financial Statements When | A parent is not required to prepare consolidated financial statements if all the following conditions are met:
| A parent that is itself a wholly-owned or virtually wholly-owned subsidiary of another entity, and if approved by the minority shareholders in the entity, is not required to prepare and present consolidated financial statements. |
| Non-controlling Interests | Non-controlling interests are presented within the equity section of the consolidated balance sheet, separately from the parent’s equity. | The term “minority interests” is used as a substitute for the term “non-controlling interests” and must be presented within the equity section of the consolidated balance sheet, separately from the parent’s equity. |
| Changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (specifically, transactions with owners acting in their capacity as owners). | Not addressed. | |
| Loss of Control | When control over a subsidiary is lost, the parent must: (a) Derecognize the assets and liabilities of the former subsidiary from the consolidated statement of financial position. (b) Recognize any retained investment in the former subsidiary and subsequently account for this retained investment and any amounts owed to or from the subsidiary in accordance with the relevant financial reporting standards. The value determined at the date of loss of control is regarded as the fair value at initial recognition of a financial asset under IFRS 9 or as the cost at initial recognition of an investment in an associate or joint venture. (c) Recognize any gain or loss associated with the loss of control attributable to the former controlling interest as specified. | Not addressed. |
3. Tasks to Be Performed
- Determine whether the company qualifies for exemption from preparing consolidated financial statements.
- Reassess subsidiaries and entities controlled by the parent in accordance with the provisions of IFRS 10.
- Pay attention to the accounting treatments when there are changes in ownership interests or a loss of control over subsidiaries.
