Consolidation Accounting Under IFRS 10

IFRS Consolidation Accounting

• IFRS consolidation accounting is a system for preparing and understanding consolidated financial statements according to IFRS regulations.
• The importance of consolidated financial reports is a key aspect of IFRS regulation.
• Every group of entities must present a consolidated financial report according to IFRS.
• IFRS 10, part of a Consolidation Package, deals with investor control over investees. This standard was issued in 2011. IFRS 10, 11 and 12 are related to consolidation.

IFRS Regulation - Key Standards

• IFRS 10: Consolidated Financial Statements
• IFRS 3: Business Combinations
• IAS 28: Investments in Associates
• IFRS 11: Joint Arrangements
• IFRS 12: Disclosure of Interests in Other Entities
• IAS 27: Separate Financial Statements

Consolidation Process Steps

• Identify the group of companies.
• Collect the individual companies' financial statements.
• Uniform the statements (accounting period, policies, currency, layout).
• Combine assets, liabilities, equity, income, and expenses of the parent and subsidiaries.
• Eliminate intra-group assets, liabilities, equity, income, and expenses of the parent company.
• Calculate and allocate group and non-controlling interests' results.
• Prepare consolidated financial statements.

IFRS 10 - Accounting Requirements

• Consolidation of an investee begins when the investor gains control and ends when control is lost.
• Parents must prepare consolidated financial statements using uniform accounting policies for similar transactions and events.
• Uniform accounting policies ensures consistency in financial statements for members of the group. Adjustments are made if a member uses different policies than the consolidated statements for similar events.

IFRS 10 - Reporting Date

• Consolidated financial statements use the same reporting date for the parent and its subsidiaries.
• If the parent's and subsidiary's reporting periods differ, the subsidiary provides additional financial information at the same date as the parent's statement for consolidation purposes, unless impractical.
• The difference between the subsidiary and consolidated reporting dates cannot be longer than three months.

IFRS Pre-consolidation Summary

• Pre-consolidation adjustments address form and content of financial statements to allow line-by-line aggregation.
• The closing date (interim reporting needed) usually allows for a difference of 3 months. Companies must use current exchange rates and consistent accounting principles and policies.

IFRS 10 - Consolidation Procedures

• Combine like items of assets, liabilities, equity, income, expenses, and cash flows of the parent and subsidiaries.
• Offset the parent's investment in each subsidiary and its portion of each subsidiary's equity.
• Eliminate intra-group assets, liabilities, equity, income, and expenses completely.

IFRS Consolidation Process - Items & Line by Line

• Combine like items for assets, liabilities, equity, income, expenses, and cash flows from the parent and its subsidiaries.
• 100% of items are combined, even if the parent investment in the subsidiary is less than 100%.
• Non-controlling interests should be recognized separately.

Elimination of the Investment

• Offset (eliminate) the carrying amount of the investment of the parent in each subsidiary and the parent's equity portion in each subsidiary. IFRS 3 clarifies accounting for related goodwill.

Acquisition Method

• All identifiable assets and liabilities of the subsidiaries are recognized and measured at fair value at the time of acquisition.
• Included are goodwill and other assets and liabilities, mainly intangible assets, when control is gained.

Elimination of the Investment (Continued)

• Costs of investment are converted to revalued equity.
• Cost>Revenue: Equity → Goodwill (Asset, Impairment test).
• Cost<Revenue: Equity → Revision of A&L FV, difference remaining = gain (consolidated income statement)

Non-Controlling Interests (NCI)

• NCI measurement is at fair value (full goodwill method) or at a proportionate share of the acquiree's identifiable net assets at fair value (modified Parent Company Theory).

Goodwill on Acquisition

• Goodwill from an acquisition is the difference between the cost of investment and the fair value of acquired net assets.
• Calculation: aggregate consideration measured at fair value, minus identifiable net assets (acquired assets minus assumed liabilities).

Elimination of Intra-group Transactions

• Intra-group assets, liabilities, equity, income, and cash flows relating to transactions between group entities are eliminated. Profits/losses should be adjusted for intra-group transactions.

IFRS 10 - Non-Controlling Interests

• A parent presents non-controlling interests within equity, separately from its owners' interests.
• Profit/loss and components of other comprehensive income are attributable to parent and non-controlling interests.

Examples (multiple)

• Several examples are given, illustrating consolidation at acquisition date, calculation of goodwill, noncontrolling interests, and various journal entries involved in the consolidation process, along with specific calculations and supporting tables.

Test your understanding of the consolidation process of financial statements as per IFRS 10. This quiz covers key concepts such as control, reporting dates, and intra-group transactions. Perfect for accounting students and professionals looking to reinforce their knowledge on this essential topic.