As described in the Basis for Conclusions, the Board considered whether to permit the
exception to consolidation to be ‘rolled up’ to a non-investment entity parent but rejected
this approach. This was despite the fact that the majority of respondents to the Investment
Entities Exposure Draft argued that if fair value information was more relevant than
consolidation at an investment entity subsidiary level, it is also more relevant at the non-
investment entity parent level. According to the Board, non-investment entities do not
have the unique business models of investment entities; they have other substantial
activities besides investing or do not manage substantially all of their investments on a fair
value basis. Consequently, in the Board’s view, the argument for a fair value measurement
is weakened at non-investment entity level. [IFRS 10.BC276-278].
The Board also noted the following in arriving at its conclusion:
• concern that a non-investment entity could achieve different accounting outcomes by
holding subsidiaries directly or indirectly through an investment entity; [IFRS 10.BC280]
• practical difficulties when a non-investment entity parent and an investment entity
invest in the same investment or when an investment entity subsidiary holds a
subsidiary that invests in the equity of a non-investment entity parent; [IFRS 10.BC281]
• although US GAAP permits ‘rolled up’ accounting in certain circumstances, this is
linked to industry-specific guidance that is not generally contained in IFRSs;
[IFRS 10.BC282] and
• inconsistency with the roll-up of fair value accounting option permitted by IAS 28.
However, the Board thought it was important to retain the fair value accounting
460 Chapter
6
that is currently allowed for venture capital organisations, mutual funds, unit trusts
and similar entities and that the differences between using equity accounting and
fair value accounting was considered to be smaller than between consolidation and
fair value measurement for investments in subsidiaries. [IFRS 10.BC283].
Ultimately, due to concerns about potential abuses, the Board considered that the
investment entity exception is not retained by a non-investment entity parent in its
consolidated financial statements.
11 FUTURE
DEVELOPMENTS
11.1 The revised Conceptual Framework for Financial Reporting
The IASB issued the revised Conceptual Framework in March 2018, which contains
various concepts that might, at a future date, result in changes to IFRS 10:
• a reporting entity is an entity that chooses, or is required, to prepare financial
statements;
• a reporting entity can be a single entity or a portion of an entity or can comprise
more than one entity. A reporting entity is not necessarily a legal entity;
• sometimes one entity (the parent) has control over another entity (the subsidiary).
If a reporting entity comprises both the parent and its subsidiaries, the reporting
entity’s financial statements are referred to as ‘consolidated financial statements’.
If a reporting entity is the parent alone, the reporting entity’s financial statements
are referred to as ‘unconsolidated financial statements’;
• the information about the assets, liabilities, equity, income and expenses of both
the parent and subsidiaries as a single reporting entity provided in consolidated
financial statements is useful for existing and potential investors, lenders and other
creditors of the parent in their assessment of the prospects of future net cash
inflows to the parent;
• the IASB is of the view that the information provided in unconsolidated financial
statements is typically not sufficient to meet the information needs of existing and
potential investors, lenders and other creditors of the parent, and accordingly,
when consolidated financial statements are required, unconsolidated financial
statements cannot serve as a substitute for consolidated financial statements;
• an entity controls an economic resource if it has the present ability to direct the
use of the economic resource and obtain the benefits that flow from it;
• financial statements prepared for two or more entities that do not have a
parent-subsidiary relationship with each other are referred to as combined
financial statements;
• determining the appropriate boundary of a reporting entity can be difficult if the
reporting entity: (a) is not a legal entity; and (b) does not comprise only legal entities
linked by a parent-subsidiary relationship. In such cases, determining the boundary
of the reporting entity is driven by the information needs of the primary users of
the reporting entity’s financial statements. Those users need relevant information
Consolidated financial statements 461
that faithfully represents what it purports to represent. Faithful representation
requires that:
• the boundary of the reporting entity does not contain an arbitrary or
incomplete set of economic activities;
• including that set of economic activities within the boundary of the reporting
entity results in neutral information; and
• a description is provided of how the boundary of the reporting entity was
determined and of what constitutes the reporting entity.10
The revised Conceptual Framework is effective immediately for the IASB and the IFRS
Interpretations Committee. For preparers who develop accounting policies based on
the Conceptual Framework, it is effective for annual periods beginning on or after
1 January 2020.
11.2 Post-Implementation Review of IFRS 10
The IASB aims to start the Post-Implementation Review of IFRS 10 in 2019 or early 2020.11
References
1 Regulation (EC) No. 1606/2002 of the European 3 IFRIC Update, January 2010, p.2.
Parliament and of the Council of 19 July 2002 on
4
Effect analysis IFRS 10 Consolidated Financial
the application of international accounting
Statements and IFRS 12 Disclosure of Interests in
standards, preamble para. (3).
Other Entities, IASB, September 2011, pp.25-26.
2
Agenda paper for the meeting of the 5
IFRIC Update, May 2015, pp.7-8.
Accounting Regulatory Committee on 24th 6
IFRIC Update, September 2013, p.3.
November 2006 (document ARC/19/2006), 7
IFRIC Update, January 2015, p.10.
Subject: Relationship between the IAS 8
IFRIC Update, March 2017, pp.7-8.
Regulation and the 4th and 7th Company Law
9
IFRIC Update, March 2014, p.4.
Directives – Meaning of ‘Annual Accounts’,
10 Conceptual Framework for Financial Reporting,
European Commission: Internal Market and
IASB, March 2018, paras. 3.10-3.18, 4.20.
Services DG: Free movement of capital, 11 IASB Update, June 2018.
company law and corporate governance:
Accounting/RC MX D(2006), 7
November
2006, para. 5.1.
462 Chapter
6
463
Chapter 7
Consolidation
procedures and
non-controlling interests
/>
1 INTRODUCTION ............................................................................................ 467
2 CONSOLIDATION PROCEDURES .................................................................. 467
2.1
Basic principles ..................................................................................................... 467
2.2 Proportion
consolidated
..................................................................................... 468
2.2.1
Attribution when non-controlling interests change in an
accounting period ................................................................................. 470
2.3
Consolidating foreign operations ..................................................................... 470
2.4 Intragroup
eliminations
.......................................................................................
471
2.5
Non-coterminous accounting periods .............................................................. 472
2.6 Consistent
accounting policies .......................................................................... 473
3 CHANGES IN CONTROL ................................................................................ 473
3.1
Commencement and cessation of consolidation ........................................... 473
3.1.1
Acquisition of a subsidiary that is not a business ........................... 474
3.2
Accounting for a loss of control ......................................................................... 474
3.3
Accounting for a loss of control where an interest is retained in the
former subsidiary .................................................................................................. 476
3.3.1
Interest retained in the former subsidiary – financial asset ........ 477
3.3.2
Interest retained in the former subsidiary – associate or
joint venture .......................................................................................... 478
3.3.2.A
Conflict between IFRS 10 and IAS 28
(September 2014 amendments not applied) ............... 479
3.3.2.B
Conflict between IFRS 10 and IAS 28
(September 2014 amendments applied) ......................... 482
464 Chapter
7
3.3.2.C
Examples of accounting for sales or
contributions to an existing associate ......................... 483
3.3.2.D
Determination of the fair value of the retained
interest in a former subsidiary which is an
associate or joint venture .............................................. 484
3.3.2.E
Presentation of comparative information for a
former subsidiary that becomes an investee
accounted for using the equity method...................... 485
3.3.3
Interest retained in the former subsidiary – joint
operation ............................................................................................... 485
3.4
Loss of control in multiple arrangements ........................................................ 487
3.5
Other comprehensive income .......................................................................... 488
3.6 Deemed
disposal .................................................................................................. 492
3.7
Demergers and distributions of non-cash assets to owners ........................ 493
3.7.1
Scope of IFRIC 17 ................................................................................ 493
3.7.2 Recognition
and
measurement in IFRIC 17 .................................... 494
3.7.3 Presentation
and disclosure .............................................................. 495
4 CHANGES IN OWNERSHIP INTEREST WITHOUT A LOSS OF
CONTROL ...................................................................................................... 495
4.1
Reattribution of other comprehensive income ............................................. 496
4.2
Goodwill attributable to non-controlling interests ....................................... 498
4.3
Non-cash acquisition of non-controlling interests ....................................... 500
4.4 Transaction costs ................................................................................................. 500
4.5
Contingent consideration on purchase of a non-controlling
interest .................................................................................................................... 501
5 NON-CONTROLLING INTERESTS ................................................................ 502
5.1
The definition of non-controlling interests .................................................... 502
5.2
Initial measurement of non-controlling interests ......................................... 503
5.2.1
Initial measurement of non-controlling interests in a
business combination ......................................................................... 503
5.2.2
Initial measurement of non-controlling interests in a
subsidiary (that is not a business combination) ............................. 506
5.2.3
Measurement of non-controlling interests where an
associate holds an interest in a subsidiary ...................................... 506
5.3
Presentation of non-controlling interests ........................................................ 507
5.4 Non-controlling
interests
classified as financial liabilities .......................... 508
5.5
Subsequent measurement of non-controlling interests ............................... 509
5.5.1
Loss-making subsidiaries .................................................................... 510
6 CALL AND PUT OPTIONS OVER NON-CONTROLLING INTERESTS ............. 510
6.1
Call options only .................................................................................................... 511
Consolidation procedures and non-controlling interests 465
6.1.1
Options giving the acquirer present access to returns
associated with that ownership interest ........................................... 511
6.1.2
Options not giving the acquirer present access to returns
associated with that ownership interest .......................................... 512
6.2
Put options only .................................................................................................... 513
6.2.1
The financial liability for the NCI put .............................................. 514
6.2.2
The NCI put provides a present ownership interest ..................... 516
6.2.3
The NCI put does not provide a present ownership
interest .................................................................................................... 516
6.2.3.A
Non-controlling interest is not recognised –
financial liability recognised (Approach
1) .................. 517
6.2.3.B Full
recognition
of
non-controlling interest
(Approach 2) ..................................................................... 518
6.2.3.C
Partial recognition of non-controlling interest
(Approach 3) ...................................................................... 518
6.2.3.D Non-controlling
interest is subsequently
derecognised (Approach 4) ............................................ 519
6.2.4
Assessing whether multiple transactions should be
accounted for as a single arrangement ............................................ 520
6.2.4.A
Identifying a linked transaction ................................... 520
6.2.4.B
Accounting for the linked transaction ......................... 521
6.3
Combination of call and put options ................................................................ 523
6.4
Call and put options entered into in relation to existing non-
controlling interests .............................................................................................. 523
6.5
Put options over non-controlling interests – Interpretations
Committee and IASB developments ................................................................. 523
6.6
Put and call options in separate financial statements .................................... 525
7 FUTURE DEVELOPMENTS ............................................................................ 526
7.1
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) ............ 526
7.2
Sale or contribution of assets to a joint operation (where the entity
has joint control or is a party to the joint operation) ..................................... 527
7.3 Fair
value
measurement: unit of account ........................................................ 527
7.4
Financial Instruments with Characteristics of Equity project .................... 528
7.5
Mandatory purchase of non-controlling interests ........................................ 529
466 Chapter
7
List of examples
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 92
