Accounting basis for consolidating assets and liabilities 27 Consolidated and Separate Financial Statements outlines when an entity must consolidate another entity, how to account for a change in ownership interest, how to prepare separate financial statements, and related disclosures.
Consolidation is based on the concept of 'control' and changes in ownership interests while control is maintained are accounted for as transactions between owners as owners in equity. 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: SPEs should be consolidated where the substance of the relationship Accounting basis for consolidating assets and liabilities 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. A parent is required to present consolidated financial statements in which it consolidates its investments in subsidiaries [IAS A parent is not required to but may present consolidated financial statements if and only if all of the following four conditions are met: The consolidated accounts should include all of the parent's subsidiaries, both domestic and foreign: Special purpose entities SPEs should be consolidated where the substance of the relationship indicates that the SPE is controlled by the reporting entity.
Once an investment ceases to fall within the definition of a subsidiary, it should be accounted for as an associate under IAS 28as a joint venture under IAS 31or as an investment under IAS 39as appropriate.
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. 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.
And in no case may the difference be more than three months. Consolidated financial statements must be prepared using uniform accounting policies for like transactions and other events in similar circumstances. 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. 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, Accounting basis for consolidating assets and liabilities such profits are attributed to the group until the minority's share of losses previously absorbed by the group has been recovered.
Acquiring additional shares in the subsidiary after control was obtained is accounted for as an equity transaction with owners like acquisition of 'treasury shares'.