IAS 27 – Consolidate and Separate Financial Statements
Objective: The requirements for preparing and presenting consolidated financial statements for a group of entities under the control of a company. And the accounting for: investments in subsidiaries, jointly controlled entities, and associated in separate financial statements.
A subsidiary is an entity controlled by another entity, and control is the power to govern the operation and the financial policies.
Consolidated financial statements are financial statement of a group, presented as those of a single economic entity.
All entities in the group must use the same accounting policies.
Reporting dates of subsidiaries cannot be more than three months different from the group reporting date.
Minority interest is reporting in equity in the balance sheet, and is not deducted in measuring the group's profit or loss.
The Differences and Similarities between US GAAP Law and IFRS
Similarities & Differences:
IFRS | US Law GAAP | |
Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS are not clear regarding whether control should be assessed using: - a-power-to-control-model - a-de-facto-control-model | Like IFRS control is the power to govern the financial and operating policies of an entity. However unlike IFRS there is no linkage between control and ownership benefits. | Control |
IFRS | US Law GAAP | |
Focus is on the concept of the power to control, when control is being able to govern the financial and operating policies of an entity to obtain benefits. Control is presumed when the parent owns more than 50% of the votes, and potential voting right must be considered. | The control model that applies differs from the control model under IFRS, Additionally unlike IFRS entities are evaluated as based on their equity investment at risk. Equity investment risk is : 1. insufficient to finance its own operation without additional subordinate financial support. 2. lack certain characteristics of controlling financial interest | Consolidation model |
All subsidiaries are consolidated | All subsidiaries are consolidated, However unlike IFRS there is limit In certain industries | Consolidate subsidiaries |
A parent and its subsidiaries generally use the same reporting date when consolidate financial statements. If this is not practicable, then the difference between the reporting date of a parent and subsidiary cannot be more than three months. Adjustment are made for the effects of significant transaction and events between the two date | Like IFRS the difference between the two reporting dates of parent and its subsidiary cannot be more than three months. However, unlike IFRS use of the same reporting is not practical Unlike IFRS adjustment are not made for the effects of significant transactions and events between these dates, although disclosures regarding those effects are required. | Consolidation date |
Minority interest is recognized initially based on the minority's share of the amounts recognized in the purchase accounting, excluding goodwill. | Unlike IFRS minority interest are recognized initially at fair value. Unlike IFRS minority interest are recognized initially based on the carrying amount of the assets and liabilities in the subsidiary's financial statement. | Minority interests |
Losses in subsidiary may create a debit balance in minority interests only if the minority has an obligation to fund the losses. | Like IFRS losses in a subsidiary may create a debit balance in minority interest only if the minority has an obligation to fund the losses. | Minority's Interest in Group Losses |
IFRS | US Law GAAP | |
Minority interest in the balance sheet are classified as equity but are presented separately from the parent shareholders equity. | Unlike IFRS minority interest in the balance sheet are represented either as a long-term liability, or between total liabilities and equity. | Presenting Minority Interest in the Balance Sheet |
There is no guidance on accounting for acquisition of minority interest. | Unlike IFRS acquisition of minority interest are accounted for using purchase accounting | Acquisition of Minority Interest |
Intra-group transactions are eliminated in full. | Like IFRS Intra-group transactions are eliminated in full. However transaction with beneficiary the income and expenses attributed entirely to the beneficiary. | Intra-Group Transactions |
There is no guidance on dilution of parent's interest in subsidiary | Unlike IFRS the treatment of dilutions in the parent's interest in subsidiary is prescribed for in SEC regulation. | Dilution of parent's interest in subsidiary |
Non–Controlling Interest
IFRS | US Law GAAP | |
Non controlling interest are recognized initially at fair value, or in non-controlling interest when only the share of the amounts recognized excluding goodwill. | Unlike IFRS non-controlling interests must be recognized initially at fair value | Recognition |
Non-controlling interest in the balance sheet are classified as equity but presented separately from the parent shareholders equity. | Like IFRS Non-controlling interest in the balance sheet are classified as equity but presented separately from the parent shareholders equity. | Classification |
Comprehensive income attributable to non-controlling interest is presented as an allocation of comprehensive income for the period. | Like IFRS comprehensive income attributable to non-controlling interest is presented as an allocation of comprehensive income for the period. | Equity income |
Changes in ownership interest after control is obtained that do not result in loss of control are accounted for as equity transaction. | Like IFRS changes in ownership interest after control is obtained that do not result in loss of control are accounted for as equity transaction. |
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