UNIT 1 – Introduction to
group accounts
Learning objectives
Understand the terminology used in
consolidations
Explain the need for, and exemption from,
consolidation
Explain the various methods of gaining
control
IFRS 10 objectives
Parent entity (entity that controls one or more other
entities) to present consolidated financial
statements
Defines the principle of CONTROL and establishes
control as the basis for consolidation
Sets out principle of control to determine whether
an investor controls an investee
Sets out accounting requirements for the
preparation of consolidated financial statements
Defines an investment entity and sets out an
exception to consolidating particular subsidiaries
of an investment entity
IFRS 10 definitions
Appendix A
Consolidated financial statements
Control of an investee
Decision maker
Group – parent & subsidiaries
Investment entity
Non-controlling interest – equity in subsidiary not attributable to
the parent
Parent
Power
Protective rights
Relevant activities
Removal rights
Subsidiary
IFRS 10 scope
Parent shall present consolidated AFS, except
as follows:
It is a wholly-owned subsidiary or a partially owned subsidiary of
another entity and all its owners have been informed about, and
do not object to, the parent not presenting consolidated AFS
Its debt or equity instruments are not traded in a public market
It did not file, nor is it 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.
Its ultimate or any intermediate parent produces consolidated
AFS that are available for public use and comply with IFRS
CONTROL
Investor has to assess whether it is a parent
by assessing whether it has control
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.
CONTROL (cont.)
Investor controls an investee if the investor
has the following:
Power over the investee
Exposure, or rights, to variable returns from its
involvement with the investee
The ability to use its power over the investee to
affect the amount of the investor’s returns
POWER
Existing rights that give it the current ability to direct the
relevant activities (activities that significantly affect the
investee’s returns)
Power arises from rights which are normally voting rights that
comes with shareholding.
Investor can have power over an investee even if other
entities have existing rights that give them power to
participate in the direction of relevant activities; eg. Protective
rights, significant influence
RETURNS
An investor is exposed, or has rights to,
variable returns from its involvement with the
investee
Only 1 investor can control an investee.
More than one party can share in the returns
of an investee
LINK BETWEEN POWER AND RETURNS
EXPOSURE TO
POWER
VARIABLE RETURNS
INVESTOR USES POWER TO AFFECT
RETURNS
RIGHTS
Voting rights
Rights to appoint, reassign or remove
members of management
Rights to appoint or remove another entity
that direct the relevant activities
Rights to direct the investee to enter into
transactions for the benefit of the investor
Other – decision making rights
Degree of influence
Control Consolidate
Joint control Depends
Significant influence Equity method
Less than significant
influence Investment - IFRS 9
Effective interest
Reflect parent’s actual share in equity (profits
& reserves)
May be determined by % owned
% effective interest does not always equal %
control – consider voting rights
What is a group?
>50% of ordinary shares
First company control over second company
Voting rights to appoint directors and may
decide on dividend payments
Cast majority votes at Board of Directors
meeting
Govern financial and operating policies
Examples
A
60%
B 25%
30%
C
Examples
A
40%
B 25%
30%
C
IFRS 3 BUSINESS COMBINATIONS
AQCUISITION METHOD
Identify the acquirer
Determine the acquisition date – date on which
control is gained
Recognise and measure the identifiable assets
acquired, the liabilities assumed and any non-
controlling interest in acquiree
Recognise and measure goodwill
Recognise and measure assets and
liabilities
Identifiable assets and liabilities assumed
must meet the definitions of assets and
liabilities as per the Framework for
preparation and presentation of financial
statements
Must be part of what the acquirer and
acquiree exchanged in the business
combination
Acquirer shall measure them at their
acquisition-date fair value
