History of IAS 27
| September1987 | Exposure Draft E30 Consolidated Financial Statements and Accounting for Investments in Subsidiaries |
| April1989 | IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries |
| 1January1990 | Effective date of IAS 27 (1989) |
| 1994 | IAS 27 was reformatted |
| December1998 | IAS 27 was amended by IAS 39 Financial Instruments: Recognition and Measurement effective 1 January 2001 |
| 18December2003 | Revised version of IAS 27 issued by the IASB |
| 1January2005 | Effective date of IAS 27 (2003) |
| 25June2005 | Exposure Draft of Proposed Amendments to IFRS 3 and IAS 27 |
| 10January2008 | Revised IAS 27 (2008) issued |
| 22May2008 | IAS 27 amended for Cost of a Subsidiary in the Separate Financial Statements of a Parent on First-time Adoption of IFRSs |
| 22May2008 | IAS 27 amended for Annual Improvements to IFRSs 2007 relating to measurement of investments held for sale under IFRS 5 in separate financial statements |
| 1January2009 | Effective date of the two May 2008 amendments |
| 1July2009 | Effective date of IAS 27 (2008). Deloitte has published a Special Edition of our IAS Plus Newsletter dealing with the January 2008 revisions to IFRS 3 and IAS 27 (PDF 123k). |
| 6May2010 | IAS 27 amended for Annual Improvements to IFRSs 2010 |
| 1July2010 | Effective date of May 2010 amendment to IAS 27 |
| 12May2011 | IAS 27 (2008) is superseded by IAS 27 Separate Financial Statements (2011) and IFRS10 Consolidated Financial Statements effective 1 January 2013 |
Related Interpretations
- IFRIC 17 Distributions of Non-cash Assets to Owners
- SIC-12 Consolidation – Special Purpose Entities
- IAS 27 (revised 2003) supersedes SIC-33 Consolidation and Equity Method – Potential Voting Rights and Allocation of Ownership Interest
Summary of IAS 27
Objectives of IAS 27
IAS 27 has the twin objectives of setting standards to be applied:
- in the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent; and
- in accounting for investments in subsidiaries, jointly controlled entities, and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements.
Key definitions [IAS 27.4]
Consolidated financial statements: the financial statements of a group presented as those of a single economic entity.
Subsidiary: an entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent).
Parent: an entity that has one or more subsidiaries.
Control: the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Identification of subsidiaries
Control is presumed when the parent acquires more than half of the voting rights of the entity. Even when more than one half of the voting rights is not acquired, control may be evidenced by power: [IAS 27.13]
- over more than one half of the voting rights by virtue of an agreement with other investors, or
- to govern the financial and operating policies of the entity under a statute or an agreement; or
- to appoint or remove the majority of the members of the board of directors; or
- to cast the majority of votes at a meeting of the board of directors.
SIC-12 provides other indicators of control (based on risks and rewards) for Special Purpose Entities (SPEs). SPEs should be consolidated where the substance of the relationship indicates that the SPE is controlled by the reporting entity. This may arise even where the activities of the SPE are predetermined or where the majority of voting or equity are not held by the reporting entity. [SIC-12]
Presentation of consolidated financial statements
A parent is required to present consolidated financial statements in which it consolidates its investments in subsidiaries [IAS 27.9] – with the following exception:
A parent is not required to (but may) present consolidated financial statements if and only if all of the following four conditions are met: [IAS 27.10]
- the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements;
- the parent's debt or equity instruments are not traded in a public market;
- the parent did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and
- the ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with International Financial Reporting Standards.
The consolidated accounts should include all of the parent's subsidiaries, both domestic and foreign: [IAS 27.12]
- There is no exemption for a subsidiary whose business is of a different nature from the parent's.
- There is no exemption for a subsidiary that operates under severe long-term restrictions impairing the subsidiary's ability to transfer funds to the parent. Such an exemption was included in earlier versions of IAS 27, but in revising IAS 27 in December 2003 the IASB concluded that these restrictions, in themselves, do not preclude control.
- There is no exemption for a subsidiary that had previously been consolidated and that is now being held for sale. However, a subsidiary that meets the IFRS 5 criteria as an asset held for sale shall be accounted for under that Standard.
Special purpose entities (SPEs) should be consolidated where the substance of the relationship indicates that the SPE is controlled by the reporting entity. This may arise even where the activities of the SPE are predetermined or where the majority of voting or equity are not held by the reporting entity. [SIC-12]
Once an investment ceases to fall within the definition of a subsidiary, it should be accounted for as an associate under IAS 28, as a joint venture under IAS 31, or as an investment under IAS 39, as appropriate. [IAS 27.31]
Consolidation procedures
Intragroup balances, transactions, income, and expenses should be eliminated in full. Intragroup losses may indicate that an impairment loss on the related asset should be recognised. [IAS 27.24-25]
The financial statements of the parent and its subsidiaries used in preparing the consolidated financial statements should all be prepared as of the same reporting date, unless it is impracticable to do so. [IAS 27.26] If it is impracticable a particular subsidiary to prepare its financial statements as of the same date as its parent, adjustments must be made for the effects of significant transactions or events that occur between the dates of the subsidiary's and the parent's financial statements. And in no case may the difference be more than three months. [IAS 27.27]
Consolidated financial statements must be prepared using uniform accounting policies for like transactions and other events in similar circ*mstances. [IAS 27.28]
Minority interests should be presented in the consolidated balance sheet within equity, but separate from the parent's shareholders' equity. Minority interests in the profit or loss of the group should also be separately disclosed. [IAS 27.33]
Where losses applicable to the minority exceed the minority interest in the equity of the relevant subsidiary, the excess, and any further losses attributable to the minority, are charged to the group unless the minority has a binding obligation to, and is able to, make good the losses. Where excess losses have been taken up by the group, if the subsidiary in question subsequently reports profits, all such profits are attributed to the group until the minority's share of losses previously absorbed by the group has been recovered. [IAS 27.35]
Partial disposal of an investment in a subsidiary
The accounting depends on whether control is retained or lost:
- Partial disposal of an investment in a subsidiary while control is retained. This is accounted for as an equity transaction with owners, and gain or loss is not recognised.
- Partial disposal of an investment in a subsidiary that results in loss of control. Loss of control triggers remeasurement of the residual holding to fair value. Any difference between fair value and carrying amount is a gain or loss on the disposal, recognised in profit or loss. Thereafter, apply IAS 28, IAS 31, or IAS 39, as appropriate, to the remaining holding.
Acquiring additional shares in the subsidiary after control is obtained
Acquiring additional shares in the subsidiary after control was obtained is accounted for as an equity transaction with owners (like acquisition of 'treasury shares'). Goodwill is not remeasured.
Separate financial statements of the parent or investor in an associate or jointly controlled entity
In the parent's/investor's individual financial statements, investments in subsidiaries, associates, and jointly controlled entities should be accounted for either: [IAS 27.37]
- at cost, or
- in accordance with IAS 39.
The parent/investor shall apply the same accounting for each category of investments. Investments that are classified as held for sale in accordance with IFRS 5 shall be accounted for in accordance with that IFRS. [IAS 27.37] Investments carried at cost should be measured at the lower of their carrying amount and fair value less costs to sell. The measurement of investments accounted for in accordance with IAS 39 is not changed in such circ*mstances. [IAS 27.38] An entity shall recognise a dividend from a subsidiary, jointly controlled entity or associate in profit or loss in its separate financial statements when its right to receive the dividend is established. [IAS 27.38A]
Disclosure
Disclosures required in consolidated financial statements: [IAS 27.40]
- the nature of the relationship between the parent and a subsidiary when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power,
- the reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or potential voting power of an investee does not constitute control,
- the reporting date of the financial statements of a subsidiary when such financial statements are used to prepare consolidated financial statements and are as of a reporting date or for a period that is different from that of the parent, and the reason for using a different reporting date or period, and
- the nature and extent of any significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances.
Disclosures required in separate financial statements that are prepared for a parent that is permitted not to prepare consolidated financial statements: [IAS 27.41]
- the fact that the financial statements are separate financial statements; that the exemption from consolidation has been used; the name and country of incorporation or residence of the entity whose consolidated financial statements that comply with IFRS have been produced for public use; and the address where those consolidated financial statements are obtainable,
- a list of significant investments in subsidiaries, jointly controlled entities, and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held, and
- a description of the method used to account for the foregoing investments.
Disclosures required in the separate financial statements of a parent, investor in a jointly controlled entity, or investor in an associate: [IAS 27.42]
- the fact that the statements are separate financial statements and the reasons why those statements are prepared if not required by law,
- a list of significant investments in subsidiaries, jointly controlled entities, and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held, and
- a description of the method used to account for the foregoing investments.
FAQs
According to IAS 27 standard separate financial statements are defined as those presented by an entity in which the entity could elect to account for its investments in subsidiaries, joint ventures and associates either at cost, in accordance with IFRS 9, or using the equity method as described in IAS 28.
What are separate financial statements and consolidated financial statements? ›
Separate financial statements are those presented in addition to consolidated financial statements or in addition to the financial statements of an investor that does not have investments in subsidiaries but has investments in associates or joint ventures in which the investments in associates or joint ventures are ...
Can financial statements be combined and consolidated? ›
While investors and lenders can see an aggregate of the health of the company in a consolidated statement, the combined financial statements allow the investor to see the financial health of each individual operation. On both the combined and consolidated statements, inter-company transactions are eliminated.
What is 2 under PAS 27 state core principle for consolidation of financial statements? ›
Answer: The core principle for consolidation of financial statements provides that an entity that is a parent shall present consolidated financial statements. This means that consolidated financial statements shall include all subsidiaries of the parent.
What is the difference between separate and individual financial statements? ›
These would be classified as separate financial statements. If a company has no subsidiaries, it does not prepare consolidated financial statements and its company-only financial statements are 'individual' but not 'separate' (because the definition of 'separate' includes the condition of being a parent).
What is a separate statement of financial position? ›
These financial statements are Separate financial statements. Separate financial statements are those presented by a parent in which the investment in subsidiaries are accounted for on the basis of the direct equity interest and are stated at cost.
What is the difference between consolidated and consolidated financial statements? ›
A combined financial statement is different from a consolidated financial statement in that it treats each subsidiary as a separate entity on paper, as it is in actual life. The combined financial statement reports the finances of the subsidiaries and the parent company separately, but combined into one document.
What is the purpose of preparing consolidated statements as well as separate financial statements? ›
Consolidated financial statements represent systematic preview of financial position and business performance of more legally independent entities that act either as a unique business entity, or as a group.
What is the difference between consolidating and consolidated financial statements? ›
The difference between consolidated and unconsolidated financial statements lies therein, explains information from Legal Zoom. An unconsolidated financial statement would treate each subsidiary separately from an accounting perspective, while a consolidated one accounts for every subsidiary together.
What is the difference between combine and consolidate? ›
In a consolidated presentation, there is a parent company that has a controlling interest in one or more subsidiary entities and/or is the primary beneficiary of one or more VIEs. Conversely, a combined presentation is appropriate when two or more entities are under common control, but no actual parent company exists.
Under US GAAP, there are two primary consolidation models: (1) the voting interest entity model, and (2) the VIE model. Both require the reporting entity to identify whether it has a “controlling financial interest” in a legal entity and must therefore consolidate it.
Is it mandatory to prepare consolidated financial statements? ›
19 A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circ*mstances. 20 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.
What are the consolidation procedures for preparing consolidated financial statements? ›
How to consolidate financial statements. In order to prepare consolidated financial statements efficiently, there are three main steps that should be followed: combination of assets, offset, and removal of intragroup transactions.
What are potential voting rights? ›
Potential voting rights are rights to obtain voting rights of an investee and can arise from convertible instruments, options, or other instruments.
Why does GAAP require consolidation instead of separate financial statements of individual companies? ›
Consolidation combines parent and subsidiary financials, removes intercompany transactions, and adjusts for minority interests. The resulting consolidated financial statements provide a comprehensive view of the financial position and performance of the group as a whole rather than individual companies.
How do you know if financial statements are consolidated? ›
Consolidated financial statements are financial statements of an entity with multiple divisions or subsidiaries. Companies can often use the word consolidated loosely in financial statement reporting to refer to the aggregated reporting of their entire business collectively.
What are the 3 main types of financial statements and how do they differ? ›
Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of time. Cash flow statements show the exchange of money between a company and the outside world also over a period of time.
What is the difference between statement of financial position and consolidated statement of financial position? ›
A Balance Sheet is a statement of financial position of an individual company while the Consolidated Balance Sheet is a statement of financial position of the more than one company of the same group taken together.
Who is exempt from preparing consolidated financial statements? ›
Under the Companies Act a parent company is not required to prepare consolidated financial statements for a financial year in which the group headed by that company qualifies as a small group or a medium-sized group.
What is the difference between individual accounts and consolidated accounts? ›
Different sets of accounts are used for different purposes. The individual accounts show the position and the performance of each individual company, but not the group as a whole. The consolidated accounts combine all the information from the subsidiaries under the parent's control.
3 Major Limitations of Consolidated Financial Statements
- Conceal poor performance. Consolidation means income statements will no longer report revenues, expenses, and net profit separately but rather combined. ...
- Skew financial ratios. ...
- Masks inter-company income.
Generally, it is observed that the auditors and directors sign the financial statement at different places and hence, the same tends to be undertaken at different dates. This means that the date of signing of financials by the auditors may be different from the date of signing by the directors.
Who must prepare consolidated financial statements? ›
In general, a company which is a parent at its year end must prepare consolidated financial statements.
When should you consolidate financial statements? ›
Consolidated financial statements are used when the parent company holds a majority stake by controlling more than 50% of the subsidiary business. Parent companies that hold more than 20% qualify to use consolidated accounting. If a parent company holds less than a 20% stake, it must use equity method accounting.
Why consolidated financial statements are not comparable to single entity financial statements? ›
The main difference between standalone financial and consolidated financial statements is that the consolidated form reports all activities of a company and its subsidiaries as a combined entity. In contrast, standalone financial statements report these findings as a separate entity.
Is there a difference between a balance sheet and a consolidated balance sheet? ›
A Balance Sheet is a statement that balances assets and liabilities. On the other hand, a consolidated balance sheet extends a balance sheet. In the consolidated balance sheet, the assets and liabilities of subsidiary companies are also included in the assets and liabilities of a parent company.
What is an example of consolidation of financial statements? ›
For example, if company ABC acquires XYZ, then the combined income statement cannot include sales from ABC to XYZ, nor can it include payment for services from XYZ to ABC. However, if ABC or XYZ sells to an external business entity, then those revenues are part of the consolidated income statement.
What is the advantage of consolidate? ›
Simplify your repayment process by making only one payment every month instead of making separate payments for each loan. This single payment is likely to be a lower amount than the combination of minimum payments required for each separate loan.
How do you consolidate two financial statements? ›
Consolidate financial statements by creating a balance sheet that reflects a sum of net worth, assets and liabilities. This is done by simply adding together the separate values from the balance sheets of the parent company and the subsidiaries.
What are two rules of consolidation? ›
What Are the Rules of Consolidation Accounting?
- Declare minority interests. ...
- The financial reporting statements must be prepared in the same way for the parent company as they are for the subsidiary company.
- Completely eliminate intragroup transactions and balances.
In consolidated income statements, eliminate intercompany revenue and cost of sales arising from the transaction. In the consolidated balance sheet, eliminate intercompany payable and receivable, purchase, cost of sales, and profit/loss arising from transactions.
What should be avoided in consolidation? ›
As a general rule, avoid consolidating any debt that will experience an increase in interest rate simply because you consolidate it. With a higher interest rate, you'll end up paying more money on the debt than you would've had you kept it separate at a lower interest rate.
What is the penalty for not filing consolidated financial statements? ›
Penalty
| Period of Delay | Amount of Penalty |
|---|
| More than 90 days and upto 180 days | 10X of normal fee |
| More than 180 days and upto 270 days | 12X of normal fee |
| Delay beyond 270 days | The second proviso to sub-section (1) of section 403 of the Act may be referred. (Rs.100 per day penalty after 270 days) |
4 more rowsTo avoid consolidation the total equity investment at risk should be sufficient for the VIE to finance its activities without additional support.
What are the 3 consolidated financial statements? ›
Consolidated financial statements are the overall group's financial statements. They represent the total of the parent company and all subsidiaries that are controlled by the parent company. They include all three key financial statements; income statement, cash flow statement, and balance sheet.
How to prepare consolidated financial statements step by step? ›
The following steps document the consolidation accounting process flow.
- Record Intercompany Loans. ...
- Charge Corporate Overhead. ...
- Charge Payables. ...
- Charge Payroll Expenses. ...
- Complete Adjusting Entries. ...
- Investigate Asset, Liability, and Equity Account Balances. ...
- Review Subsidiary Financial Statements.
Consolidation Process for Financial Statements
Prepare separate financial statements -- that is income statement, balance sheet and cash flow statement -- for the parent company and each subsidiary. Add the totals of similar line items in the separate financial statements to convert them into that of a single entity.
What are consolidated financial statements as per accounting standards? ›
While preparing a consolidated financial statement, the parent company's financial statements and its subsidiaries must be combined line by line by totaling together similar items such as assets, liabilities, income, and expenses.
What is IAS 27 separate financial statements 2011? ›
IAS 27 Separate Financial Statements (as amended in 2011) outlines the accounting and disclosure requirements for 'separate financial statements', which are financial statements prepared by a parent, or an investor in a joint venture or associate, where those investments are accounted for either at cost or in ...
What is the objective of IND as 27 separate financial statements? ›
The objective of this IND AS 27 is to lay down the accounting and disclosure requirements for investments in subsidiaries, JV, and associates when a parent company prepares separate financial statements.
The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.
What are the separately disclosed items in cash flow statement? ›
Interest and investment income (and taxes on income) are disclosed separately at their cash-only figures on the face of the statement of cash flows.
Who has to make consolidated financial statements? ›
Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial information about the economic activities of its group.
What is the requirement to present consolidated financial statements? ›
In general, the consolidation of financial statements requires a company to integrate and combine all of its financial accounting functions together in order to create consolidated financial statements that shows results in standard balance sheet, income statement, and cash flow statement reporting.
What types of financial statements are consolidated? ›
Consolidated financial statements are the overall group's financial statements. They represent the total of the parent company and all subsidiaries that are controlled by the parent company. They include all three key financial statements; income statement, cash flow statement, and balance sheet.
What is consolidated financial statements under IND as? ›
Ind AS that matter for Consolidation
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.
What is the objective of consolidated financial statements? ›
The objective of the consolidated financial statements is to show the position of the group as if it were a single economic entity, therefore: Assets and liabilities of P and S are included in the consolidated statement of financial position.
What are the five types of financial statements prepared as per IAS? ›
5 Types of Financial Reports and Their Benefits for Business
- Balance Sheet.
- Income Statement.
- Cash Flow Statement.
- Statement of Changes in Capital.
- Notes to Financial Statements.
IAS 27 prescribes the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity elects, or is required by local regulations, to present separate financial statements.
What are the 4 required financial statements? ›
But if you're looking for investors for your business, or want to apply for credit, you'll find that four types of financial statements—the balance sheet, the income statement, the cash flow statement, and the statement of owner's equity—can be crucial in helping you meet your financing goals.
The statement of cash flows using the indirect method must separately disclose the cash flows for: Interest paid. Interest received. Dividends received (dividends paid are reported in the financing section)
Which of the following is disclosed separately in a statement of cash flows using the indirect method? ›
The correct answer is option (a).
An increase in retained earnings for the period is disclosed separately in a statement of cash flows using the indirect method.
How should non-cash transactions be disclosed? ›
Disclosure or Reporting
Instead, to record a non-cash investing and financing activity, you should include a footnote on the bottom of the statement of cash flows or in the notes of the financial statements. You can also disclose the non-cash investing and financing activity in a separate schedule or list.
