Consolidated Financial Statements - IFRS 10

Consolidated financial statements – IFRS 10
The principles concerning consolidated financial statements under IFRS are set out in IFRS 10,
‘Consolidated financial statements’. IFRS 10 has a single definition of control.
IFRS 10’s objective is to establish principles for presenting and preparing consolidated financial
statements when an entity controls one or more entities. IFRS 10 sets out the requirements for
when an entity should prepare consolidated financial statements, defines the principles of control,
explains how to apply the principles of control, and explains the accounting requirements for
preparing consolidated financial statements.
The key principle is that control exists, and consolidation is required, only if the investor possesses
power over the investee, has exposure to variable returns from its involvement with the investee,
and has the ability to use its power over the investee to affect its returns. IFRS 10 provides guidance
on the following issues when determining who has control:
 Assessment of the purpose and design of an investee.
 Relevant activities and power to direct those
.  Nature of rights – Whether substantive or merely protective in nature.
 Assessment of voting rights and potential voting rights.
 Whether an investor is a principal or an agent when exercising its controlling power.
 Relationships between investors and how they affect control.
 Existence of power over specified assets only.
In difficult situations, the precise facts and circumstances will affect the analysis under IFRS 10. IFRS
10 does not provide ‘bright lines’, and it requires consideration of many factors, such as the
existence of contractual arrangements and rights held by other parties, in order to assess control.
IFRS 10 does not contain any disclosure requirements; these are included within IFRS 12. Reporting
entities should plan for, and implement, the processes and controls that will be required to gather
the required information. This might involve a preliminary consideration of IFRS 12 issues, such as
the level of disaggregation required.
Joint arrangements – IFRS 11
A joint arrangement is a contractual arrangement where at least two parties agree to share control
over the activities of the arrangement. Unanimous consent towards decisions about relevant
activities between the parties sharing control is a requirement in order to meet the definition of joint
control.
Joint arrangements can be joint operations or joint ventures. The classification is principle-based,
and it depends on the parties’ rights and obligations in relation to the arrangement.
Where the parties’ exposure to the arrangement only extends to the net assets of the arrangement,
the arrangement is a joint venture.
Joint operators have rights to assets and obligations for liabilities. Joint operations are often not
structured through separate vehicles.
Where a joint arrangement is included in a separate vehicle, it can be either a joint operation or a
joint venture. In such cases, further analysis is required on the legal form of the separate vehicle, the
terms and conditions included in the contractual agreement and, sometimes, other facts and
circumstances. This is because, in practice, the latter two can override the principles derived from
the legal form of the separate vehicle.
Joint operators account for their rights to assets and obligations for liabilities. Joint ventures account
for their interest by using the equity method of accounting
IFRS 12
The objective of IFRS 12 is to require the disclosure of information that enables users of financial
statements to evaluate: [IFRS 12:1]
 the nature of, and risks associated with, its interests in other entities
 the effects of those interests on its financial position, financial performance and cash flows.
Where the disclosures required by IFRS 12, together with the disclosures required by other IFRSs, do
not meet the above objective, an entity is required to disclose whatever additional information is
necessary to meet the objective. [IFRS 12:3]
IFRS 12 is required to be applied by an entity that has an interest in any of the following: [IFRS 12:5]
 subsidiaries
 joint arrangements (joint operations or joint ventures)
 associates
 unconsolidated structured entities
Annual Improvements to IFRS Standards 2014–2016 Cycle clarified that the disclosures required in
IFRS 12 (with the exception of B10-B16) also apply to interests held for sale and discontinued
operations in accordance with IFRS 5. [IFRS 12:5A]
IFRS 12 does not apply to certain employee benefit plans, separate financial statements to
which IAS 27 Separate Financial Statements applies (except in relation to unconsolidated structured
entities and investment entities in some cases), certain interests in joint ventures held by an entity
that does not share in joint control, and the majority of interests in another entity accounted for in
accordance with IFRS 9 Financial Instruments. [IFRS 12:6]
An investment entity that prepares financial statements in which all of its subsidiaries are measured
at fair value through profit or loss presents the disclosures relating to investment entities required
by IFRS 12. [IFRS 12:6]*

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Consolidated financial statements – IFRS 10

 Assessment of the purpose and design of an investee.

 Relevant activities and power to direct those

.  Nature of rights – Whether substantive or merely protective in nature.

 Assessment of voting rights and potential voting rights.

 Whether an investor is a principal or an agent when exercising its controlling power.

 Relationships between investors and how they affect control.

 Existence of power over specified assets only.

 joint arrangements (joint operations or joint ventures)

 unconsolidated structured entities

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