IFRS 10 Consolidated Financial Statements defines the requirements for preparing and presenting consolidated financial statements, requiring entities to consolidate entities it controls. Control requires exposure rights to variable returns and the ability to affect those returns through power over an investee.
Objective The objective of International Financial Reporting Standard (IFRS) 10, Consolidated Financial Statements, is to establish the principles for preparing and presenting combined financial statements when an entity controls one or more distinct entities.
How to comply with the objectives of IFRS 10? Following are the objectives of IFRS 10:
An entity that controls one or more definite entities (subsidiaries) is essential to present consolidated financial statements.
It explains the principle of control and establishes control as the basis for the consolidation of financial statements.
This IFRS establishes how the principle control is applied to identify whether an investor controls an investee and therefore must consolidate that entity.
This International Financial Reporting Standard (IFRS) establishes the accounting requirements for preparing the entities’ consolidated financial statements (CFS).
This IFRS defines an investment entity and establishes an exception to consolidating certain subsidiaries of an investment entity.
Exceptions from presenting consolidated financial statements A holding (parent) company need not present consolidated financial statements (CFS) if it meets all of the following conditions given below:
The subsidiary entity wholly or partially owned by another entity and all of its other owners, including non-voting stockholders, have been instructed that the parent company will not present consolidated financial statements and have objected.
Its debt or equity instruments are not commenced on a public market (domestic or foreign stock exchange or over-the-counter markets, including local or regional markets).
It does not file its financial statements, nor is it in the process of doing so with a securities commission or other ministerial organization to issue any instrument in a public market.
Its ultimate holding (parent) company, or one of the intermediate holding companies, prepares the consolidated financial statements (CFS) that are available for the public at extensive use and comply with of International Financial Reporting Standard (IFRSs), in which subsidiaries companies are consolidated or measured at fair value through profit or loss in accordance with this of International Financial Reporting Standard (IFRS).
Consolidation procedures
They combine similar assets, liabilities, equity, income and expenses, and cash flows of the holding (parent) company with those of its subsidiaries companies.
They perform the carrying amount of the holding (parent) company’s investment in each subsidiary company and the parent company’s share of the equity of each other company.
They eradicate in full the assets and liabilities, equity, income, expenses and intra-group cash flows connected to transactions between group entities (results for the period from intra-group transactions that are conceded in assets, like inventories and fixed assets, are eliminated in total). As a result, intragroup losses may indicate impairment in value, which must be recognized in the consolidated financial statements (CFS).
Accounting requirements A holding (parent) company should prepare consolidated financial statements (CFS) using similar accounting strategies for transactions and other events that, although related, have occurred in similar situations.
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