In April 2001 the International Accounting Standards Board (IASB) adopted IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries, which had
originally been issued by the International Accounting Standards Committee in April 1989.
IAS 27 replaced most of IAS 3 Consolidated Financial Statements (issued in June 1976).
In December 2003, the IASB amended and renamed IAS 27 with a new title—Consolidated and
Separate Financial Statements. The amended IAS 27 also incorporated the guidance contained in two related Interpretations (SIC-12 Consolidation-Special Purpose Entities and SIC-33
Consolidation and Equity Method—Potential Voting Rights and Allocation of Ownership Interests).
In June 2008, the IASB amended IAS 27. This amendment, which related to accounting for
non-controlling interests and the loss of control of subsidiaries, was done in conjunction with amendments to IFRS 3 Business Combinations.
In May 2011 the IASB issued IFRS 10 Consolidated Financial Statements to replace IAS 27.
IFRS 12 Disclosure of Interests in Other Entities, also issued in May 2011, replaced the disclosure
requirements in IAS 27. IFRS 10 incorporates the guidance contained in two related
Interpretations (SIC-12 Consolidation-Special Purpose Entities and SIC-33 Consolidation).
In June 2012, IFRS 10 was amended by Consolidated Financial Statements, Joint Arrangements and
Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12). These amendments clarified the transition guidance in IFRS 10. Furthermore, these amendments provided additional transition relief in IFRS 10, limiting the requirement to present adjusted comparative information to only the annual period immediately preceding the first annual period for which IFRS 10 is applied.
In October 2012 IFRS 10 was amended by Investment Entities (Amendments to IFRS 10, IFRS 12
and IAS 27), which defined an investment entity and introduced an exception to consolidating particular subsidiaries for investment entities. It also introduced the requirement that an investment entity measures those subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments in its consolidated and
separate financial statements. In addition, the amendments introduced new disclosure requirements for investment entities in IFRS 12 and IAS 27.
Other IFRSs have made minor consequential amendments to IFRS 10, including IAS 19
Employee Benefits (issued June 2011).
10 15 17 19 22 25 27 31
B55 B58 B73 B76 B80
B85B B85K B85N
B86 B87 B88 B89 B92 B97
INTERNATIONAL FINANCIAL REPORTING STANDARD 10
CONSOLIDATED FINANCIAL STATEMENTS
Meeting the objective
Link between power and returns ACCOUNTING REQUIREMENTS
Loss of control
DETERMINING WHETHER AN ENTITY IS AN INVESTMENT ENTITY
INVESTMENT ENTITIES: EXCEPTION TO CONSOLIDATION
A Defined terms
B Application guidance
Purpose and design of an investee
Exposure, or rights, to variable returns from an investee
Link between power and returns
Relationship with other parties
Control of specified assets
Determining whether an entity is an investment entity
Fair Value Measurement
Typical characteristics of an investment entity
Uniform accounting policies
Potential voting rights
Reporting date Loss of control
Accounting for a change in investment entity status
C Effective date and transition D Amendments to other IFRSs
International Financial Reporting Standard 10 Consolidated Financial Statements (IFRS 10) is set out in paragraphs 1-33 and Appendices A-D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. Definitions of other
terms are given in the Glossary for International Financial Reporting Standards. IFRS 10
should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.
The Board added a project on consolidation to its agenda to deal with divergence in practice in applying IAS 27 and SIC-12. For example, entities varied in their application of the control concept in circumstances in which a reporting entity controls another entity but holds less than a majority of the voting rights of the entity, and in circumstances involving agency relationships.
In addition, a perceived conflict of emphasis between IAS 27 and SIC-12 had led to inconsistent application of the concept of control. IAS 27 required the consolidation of entities that are controlled by a reporting entity, and it defined control as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. SIC-12, which interpreted the requirements of IAS 27 in the context of special purpose entities, placed greater emphasis on risks and rewards.
The global financial crisis that started in 2007 highlighted the lack of transparency about the risks to which investors were exposed from their involvement with 'off balance sheet vehicles' (such as securitisation vehicles), including those that they had set up or sponsored. As a result, the G20 leaders, the Financial Stability Board and others asked the Board to review the
accounting and disclosure requirements for such 'off balance sheet vehicles'
Financial Instruments1 instead of consolidating those subsidiaries in its consolidated and separate financial statements. In addition, the amendments introduce new disclosure requirements related to investment entities in IFRS 12
Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements.
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; Thus, the principle of control sets
out the following three elements of control
power over the investee;
exposure, or rights, to variable returns from involvement with the
the ability to use power over the investee to affect the amount of the investor's returns.
in circumstances when voting rights or similar rights give an investor power, including situations where the investor holds less than a majority of voting rights and in circumstances involving potential voting rights.
in circumstances when an investee is designed so that voting rights are not the dominant factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the
relevant activities are directed by means of contractual arrangements.
in circumstances involving agency relationships.
in circumstances when the investor has control over specified assets of an investee
The IFRS requires an investor to reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.
When preparing consolidated financial statements, an entity must use uniform accounting policies for reporting like transactions and other events in similar circumstances. Intragroup balances and transactions must be eliminated. Non-controlling interests in subsidiaries must be presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.
The disclosure requirements for interests in subsidiaries are specified in IFRS 12.
The objective of this IFRS is to establish principles for the presentation and
preparation of consolidated financial statements when an entity controls one or more other entities.
Meeting the objective
2 To meet the objective in paragraph 1, this IFRS:
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
sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the
sets out the accounting requirements for the preparation of consolidated
financial statements; and
defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity.
This IFRS does not deal with the accounting requirements for business combinations and their effect on consolidation, including goodwill arising on a business combination (see IFRS 3 Business Combinations).
An investor, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.
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.
Thus, an investor controls an investee if and only if the investor has all
power over the investee (see paragraphs 10-14);
exposure, or rights, to variable returns from its involvement with
the investee (see paragraphs 15 and 16); and
the ability to use its power over the investee to affect the amount of the investor's returns (see paragraphs 17 and 18).
An investor shall consider all facts and circumstances when assessing whether it controls an investee. The investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in paragraph 7 (see paragraphs B80-B85).
Two or more investors collectively control an investee when they must act together to direct the relevant activities. In such cases, because no investor can direct the activities without the co-operation of the others, no investor individually controls the investee. Each investor would account for its interest in the investee in accordance with the relevant IFRSs, such as IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures or IFRS 9 Financial Instruments.
An investor has power over an investee when the investor has existing rights
that give it the current ability to direct the relevant activities, ie the activities that
significantly affect the investee's returns.
Power arises from rights. Sometimes assessing power is straightforward, such as when power over an investee is obtained directly and solely from the voting rights granted by equity instruments such as shares, and can be assessed by considering the voting rights from those shareholdings. In other cases, the assessment will be more complex and require more than one factor to be considered, for example when power results from one or more contractual arrangements.
An investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor has power, but such evidence is not, in itself, conclusive in determining whether the investor has power over an investee.
If two or more investors each have existing rights that give them the unilateral ability to direct different relevant activities, the investor that has the current ability to direct the activities that most significantly affect the returns of the investee has power over the investee.
An investor can have power over an investee even if other entities have existing rights that give them the current ability to participate in the direction of the relevant activities, for example when another entity has significant influence. However, an investor that holds only protective rights does not have power over an investee (see paragraphs B26-B28), and consequently does not control the investee.
An investor is exposed, or has rights, to variable returns from its involvement
with the investee when the investor's returns from its involvement have the potential to vary as a result of the investee's performance. The investor's returns can be only positive, only negative or both positive and negative.
Although only one investor can control an investee, more than one party can share in the returns of an investee. For example, holders of non-controlling interests can share in the profits or distributions of an investee.
Link between power and returns
An investor controls an investee if the investor not only has power over the
investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor's returns from its involvement with the investee.
Thus, an investor with decision-making rights shall determine whether it is a principal or an agent. An investor that is an agent in accordance with paragraphs B58-B72 does not control an investee when it exercises decision-making rights delegated to it.
A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.
Consolidation of an investee shall begin from the date the investor obtains control of the investee and cease when the investor loses control of the investee.
Paragraphs B86-B93 set out guidance for the preparation of consolidated financial statements.
A parent shall present non-controlling interests in the consolidated statement of
financial position within equity, separately from the equity of the owners of the parent.
Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (ie transactions with owners in their capacity as owners).
Paragraphs B94-B96 set out guidance for the accounting for non-controlling interests in consolidated financial statements.
Loss of control
If a parent loses control of a subsidiary, the parent:
derecognises the assets and liabilities of the former subsidiary from the consolidated statement of financial position.
recognises any investment retained in the former subsidiary at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance with relevant IFRSs. That fair value shall be regarded as the fair value on initial recognition of a financial asset in accordance with IFRS 9 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture.
recognises the gain or loss associated with the loss of control attributable to the former controlling interest.
Paragraphs B85A-B85M provide related application guidance.
28 In assessing whether it meets the definition described in paragraph 27, an entity shall consider whether it has the following typical characteristics of an investment entity: it has more than one investment (see paragraphs B85O-B85P); it has more than one investor (see paragraphs B85Q-B85S); it has investors that are not related parties of the entity (see paragraphs B85T-B85U); and it has ownership interests in the form of equity or similar interests (see paragraphs B85V-B85W).
The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified as an investment entity. An investment entity that does not have all of these typical characteristics provides additional disclosure required by paragraph 9A of IFRS 12 Disclosure of Interests in Other Entities.
If facts and circumstances indicate that there are changes to one or more of the three elements that make up the definition of an investment entity, as described in paragraph 27, or the typical characteristics of an investment entity, as described in paragraph 28, a parent shall reassess whether it is an investment entity.
A parent that either ceases to be an investment entity or becomes an investment entity shall account for the change in its status prospectively from the date at which the change in status occurred (see paragraphs B100-B101).
Investment entities: exception to consolidation
Except as described in paragraph 32, an investment entity shall not
consolidate its subsidiaries or apply IFRS 3 when it obtains control of
This appendix is an integral part of the IFRS.
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. 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. An entity with decision-making rights that is either a principal or an agent for other parties. A parent and its subsidiaries. An entity that: obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and measures and evaluates the performance of substantially all of its investments on a fair value basis.