IAS-27 - Consolidated Financial Statements and Accounting for Investment in Subsidiaries (Revised Dec 2003)
Objective of IAS 27
The objective of IAS 27 is to prescribe the requirements for preparing and presenting consolidated financial statements for a group of enterprises under the control of a parent. It also prescribes the accounting treatment for investments in subsidiaries in a parent's separate financial statements.
Key Definitions [IAS 27.6]
Subsidiary: An entity that is controlled by another entity.
Control: The power to govern the financial and operating policies of an enterprise 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 enterprise. Even when more than one half of the voting rights is not acquired, control may be evidenced by power: [IAS 27.12]
- 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 other enterprise 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.
Presentation of Consolidated Accounts
A parent is required to present consolidated accounts (that is, accounts of a group presented as those of a single enterprise) unless it is itself a wholly-owned subsidiary of another enterprise or is "virtually" wholly-owned, provided that the approval of the minority is obtained. [IAS 27.7-8]
The consolidated accounts should include all of the parent's subsidiaries, both domestic and foreign, and with no exception for a subsidiary whose business is of a different nature from the parent's, with two exceptions: [IAS 27.11]
- control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future; or
- the subsidiary operates under severe long-term restrictions that significantly impair its ability to transfer funds to the parent. [IAS 27.13]
Excluded subsidiaries should be accounted for under IAS 39.
Special purpose entities (SPEs) should be consolidated where the substance of the relationship indicates that the SPE is controlled by the reporting enterprise. 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 enterprise. [SIC 12]
Once an investment ceases to fall within the definition of a subsidiary, it should be accounted for either as an associate under IAS 28 or as an investment under IAS 39, as appropriate.
Intragroup balances and transactions should be eliminated in full. Unrealised losses resulting from intragroup transactions should also be eliminated unless cost cannot be recovered, in which case an impairment loss on the related asset should be recognised. [IAS 27.17]
The difference between the dates of financial statements used for consolidation purposes should not exceed three months. If they are drawn up to different dates, adjustments should be made for the effects of significant transactions or other events that occur between those dates and the date of the parent's financial statements. [IAS 27.19]
Uniform accounting policies should be used throughout the group. If it is impracticable to do so, that fact should be disclosed, together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied. [IAS 27.21]
Minority interests should be presented in the consolidated balance sheet separately from liabilities and the parent shareholder's equity. Minority interests in the income of the group should also be separately presented. 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 27.26]
Individual Financial Statements of the Parent
In the parent's individual financial statements, investments in subsidiaries that are included in the consolidated financial statements should be: [IAS 27.29]
- carried at cost;
- accounted for by the equity method; or
- accounted for as available-for-sale financial assets under IAS 39.
Disclosure [IAS 27.32]
- Identify significant subsidiaries by name, country, proportion of ownership, and proportion of voting power held
- Reasons for not consolidating a subsidiary
- Explanation of the relationship if the parent controls but does not own more than half of the voting power of a consolidated subsidiary
- Explanation of the relationship if the parent owns more than half of the voting power but does not control
- The effect of acquisitions and disposals of subsidiaries during the period
- In the parent's separate financial statements, a description of its method of accounting for subsidiaries.
Note: Please note that these summaries are only for reference purposes and are not a substitute for the entire IFRS/IAS. Kindly read the whole text of IFRS/IAS before consulting these summaries.
Summaries are courtesy of Deloitte.
- IAS-01 - Presentation of Financial Statements (Revised Dec 2003)
- IAS-02 - Inventories (Revised Dec 2003)
- IAS-07 - Cash Flow Statements
- IAS-08 - Net Profit or Loss for The Period, Fundamental Errors and Changes in Accounting Policies (Revised)
- IAS-10 - Events after the Balance Sheet date (Revised Dec 2003)
- IAS-11 - Construction Contracts
- IAS-12 - Income Taxes
- IAS-14 - Segment Reporting
- IAS-15 - Information reflecting the effect of changing prices (Withdrawn Dec 2003)
- IAS-16 - Property, Plant and Equipment (Revised Dec 2003)
- IAS-17 - Leases (Revised Dec 2003)
- IAS-18 - Revenue
- IAS-19 - Employee Benefits
- IAS-20 - Accounting for Government grants
- IAS-21 - The effects of changes in foreign exchange rates (Revised Dec 2003)
- IAS-22 - Business Combinations
- IAS-23 - Borrowing Costs
- IAS-24 - Related Party Disclosures (Revised Dec 2003)
- IAS-26 - Accounting and reporting by defined benefit plans
- IAS-27 - Consolidated Financial Statements and Accounting for Investment in Subsidiaries (Revised Dec 2003)
- IAS-28 - Accounting for Investment in Associates (Revised Dec 2003)
- IAS-29 - Financial Reporting in Hyperinflationary Economies
- IAS-30 - Disclosures in Fin. Statements of Banks in Similar Fin. Institutions
- IAS-31 - Financial Reporting of Interests in Joint Ventures (Revised Dec 2003)
- IAS-32 - Financial Instruments: Disclosure and Presentation (Revised Dec 2003)
- IAS-33 - Earnings Per Share (Revised Dec 2003)
- IAS-34 - Interim Financial Reporting
- IAS-38 - Intangible Assets
- IAS-39 - Financial Instruments: Recognition and Measurement (Revised Dec 2003)
- IAS-40 - Investment Property (Revised Dec 2003)
- IAS-41 - Agriculture