IFRS 10 Consolidated Financial Statements
IFRS 10 establishes principles and sets rules for presenting and preparing consolidated financial statements when a company controls other companies.
IFRS 10:
- 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.
- sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee.
- 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.
Consolidated financial statements are financial statements that present the assets, liabilities, equity, income, expenses and cash flows of a parent and its subsidiaries as those of a single economic entity.
Standard history
In April 2001 the International Accounting Standards Board (Board) 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 Board 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 May 2011 the Board issued IFRS 10 Consolidated Financial Statements to supersede 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.
In September 2014 IFRS 10 was amended by Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28), which addressed the conflicting accounting requirements for the sale or contribution of assets to a joint venture or associate. In December 2015 the mandatory effective date of this amendment was indefinitely deferred by Effective Date of Amendments to IFRS 10 and IAS 28.
In December 2014 IFRS 10 was amended by Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). These amendments clarified which subsidiaries of an investment entity should be consolidated instead of being measured at fair value through profit or loss. The amendments also clarified that the exemption from presenting consolidated financial statements continues to apply to subsidiaries of an investment entity that are themselves parent entities. This is so even if that subsidiary is measured at fair value through profit or loss by the higher level investment entity parent.
Other Standards have made minor consequential amendments to IFRS 10, including Annual Improvements to IFRS Standards 2014–2016 Cycle (issued December 2016) and Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018).
Source: IFRS.org
Frequently asked questions
What is consolidated financial statements IFRS 10
Consolidated financial statements are financial statements that present the assets, liabilities, equity, income, expenses and cash flows of a parent and its subsidiaries as those of a single economic entity.
What are the criteria for IFRS 10 exemption from consolidation
Investment entities consolidation exemption
IFRS 10 provides that an investment entity should have the following typical characteristics [IFRS 10:28], it has more than one investment, it has more than one investor, it has investors that are not related parties of the entity.
What should be disclosed in consolidated financial statements
Consolidated financial statements normally include consolidated balance sheet, consolidated statement of profit and loss, and notes, other statements and explanatory material that form an integral part thereof. Consolidated cash flow statement is presented in case a parent presents its own cash flow statement.
When should financial statements be consolidated
If a parent company has 50% or more ownership in another company, that other company is considered a subsidiary and should be included in the consolidated financial statement. This also applies if the parent company has less than 50% ownership but still has a controlling interest in that company.
Does IFRS require consolidated financial statements
IFRS 10 requires a parent entity to present consolidated financial statements. However, paragraph 4 of IFRS 10 provides an exemption whereby a parent need not present consolidated financial statements if the entity meets the criteria in paragraph 4(a) of IFRS 10.
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