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IFRS Financial Reporting

Section 9200: Consolidated Financial Statements

International Accounting Standard 27
Consolidated and Separate Financial Statements

1. IAS 3
IAS 3, Consolidated financial statements, June 1976

2. IAS 27 and IAS 28 replaced IAS 3 in April 1989
"Consolidated financial statements and accounting for investments in subsidiaries"

3. Revisions of IAS 27
Revised in December 2003: Consolidated and separate financial statements
Revised in January 2008
Amended in May 2008

[U.S. GAAP Codification Topic]
810 Consolidation
810-10 Overall
810-20 Control of partnerships and similar entities
810-30 Research and development arrangements

[U.S. GAAP before the Codification]
ARB 51, August 1959, Consolidated Financial Statements
SFAS 94, October 1987, Consolidation of All Majority-owned Subsidiaries, an amendment of ARB No. 51, with related amendments of APB Opinion No. 18 and ARB No. 43, Chapter 12
SFAS 160, December 2007, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51
SFAS 140, September 2000, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement of No. 125
FIN 46(R), Revised in December 2003 and amended by SFAS 167 in June 2009
SFAS 166, June 2009, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140
SFAS 167, June 2009, Amendments to FASB Interpretation No. 46(R)

4. Scope of Consolidated Financial Statements
All subsidiaries are included
--> in the consolidated financial statements, IAS 27.12

5. Subsidiary
--> A subsidiary is controlled by the parent

6. Parent
--> The parent has one or more subsidiaries

7. Control is the "power to govern"
--> the policies of an entity
--> to obtain benefits financial and operating policies

8. Changes in ownership interest in a subsidiary without a loss of control are
--> treated as equity transactions, IAS 27.30

9. Differences between (1) and (2) are
--> recognised directly in equity, to the owners of the parent
(1) fair value of consideration
(2) adjustment in non-controlling interests

10. Loss of Control
If the parent loses control of a subsidiary
--> recognise investment retained in that subsidiary, at the fair value,
at the date of control loss, IAS 27.34

11. If the parent loses control of a subsidiary
--> reclassify gains and losses in other comprehensive income due to that subsidiary
--> to profit or loss, IAS 27.35

12. In Separate Financial Statements, IAS 27.38
Investments in subsidiaries, associates and joint ventures
--> are reported using (1) or (2)
(1) at cost
(2) as measured by IAS 39

13. Measurement of Non-controlling interests
IFRS 3 (revised in January 2008), IFRS 3.19
Non-controlling interests are measured at either (1) or (2)
(1) Fair Value
(2) Proportionate Share of Net Assets

IFRS 3, before January 2008 revision
Minority interests are measured at
--> Proportionate Share of Net Assets

14. Measurement of non-controlling interests: U.S. GAAP, ASC 805-20-30-1
SFAS 141(R), Revised in December 2007
One measurement principle (Para. 20)
Non-controlling interests are measured at the acquisition-date fair value
--> No alternative is allowed.

15. Presentation of Non-controlling interests
IAS 27 (revised in January 2008),
Non-controlling Interests are presented
--> within equity, separately from the equity of the owners of the parent

IAS 27, 2003 Revision
Minority interests are presented
--> within equity, separately from the parent shareholders’ equity

IAS 27, Before 2003 Revision
Minority interests are presented
--> separately from liabilities and the parent shareholders’ equity

16. Presentation of NCI: U.S. GAAP
SFAS 160, December 2007
An Amendment to ARB No. 51 (August 1959)
Noncontrolling Interests are presented
--> within Equity, separately from the parent’s equity

17. Measurement of Goodwill, IFRS 3, issued in March 2004
Goodwill = Cost of Business Combination – Acquirer’s Interest in Net Assets (Fair Value)

18. Measurement of Goodwill, IFRS 3, revised in January 2008
Goodwill = A - B, where
A = Consideration transferred + Non-controlling interest
B = Net identifiable assets acquired

19. How NCI Affects the Goodwill
IFRS 3 (2008), SFAS 141(R)
Goodwill = Consideration Transferred + NCI – Fair Value of Net Assets

20. An Example
Fair Value of Net Assets = $100,000
NCI at Fair Value = $40,000
NCI ownership = 30%
Consideration transferred = $90,000

NCI Measured at Fair Value
Goodwill = Consideration Transferred + NCI – Fair Value of Net Assets
= $90,000 + $40,000 - $100,000 = $30,000

NCI Measured at Proportionate Share
Goodwill = Consideration Transferred + NCI – Fair Value of Net Assets
= $90,000 + $30,000 - $100,000 = $20,000

IFRS 3 (Before 2008 Revision)
Goodwill = Cost of Business Combination – Acquirer’s Interest in Net Assets (Fair Value)
= $90,000 - $70,000 = $20,000

21. Bargain Purchase
Gain from Bargain Purchase:
When A < B, where
A = Consideration transferred + Non-controlling interest
B = Net identifiable assets acquired

Gain from Bargain Purchase is recognised in Profit or Loss
No concept of “Negative Goodwill”

22. Goodwill is not amortised, IFRS 3.B63(a)
Goodwill is measured at (1) - (2)
(1) the amount recognised at the acquisition date
(2) any accumulated impairment losses.”
IAS 36 is applied for an impairment test

ASC 350-20-35-1, SFAS 142.18, June 2001
Goodwill is not amortized
Goodwill is tested for impairment

International Accounting Standard 27 - SIC 12
Special Purpose Entities (SPE)

[SPE in IFRS]

IAS 27, Consolidated and Separate Financial Statements
--> General Rule of Consolidation
--> All entities controlled by reporting entity: consolidated

SIC 12, Special Purpose Entities
SIC (Standing Interpretations Committee) 12
"Consolidation – Special Purpose Entities"
Issued in December 1998, amended in November 2004

Special Purpose Entities (SPE)
--> Entities with a “Narrow and Well-Defined Objective”
--> SPE is Consolidated, IF SPE is controlled by the entity
--> Even though Voting Rights Condition (More than 50%) is NOT Met

Appendix to SIC 12: Indicators of control over an SPE
Activities, Decision-making, Benefits, Risks

SIC 12 does not apply to
Post-employment benefit plans (IAS 19)
Other long-term employee benefit plans (IAS 19)

SIC 12 applies to
Equity compensation plans (IFRS 2)
Amended by IFRIC in 2004

[SPE in U.S. GAAP]

SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, issued in September 2000
Replaced SFAS 125, issued in June 1996
Amended by SFAS 156 in March 2006
Amended by SFAS 166 in June 2009

Qualifying SPE, before SFAS 166
An entity that meets all of the conditions listed in Para. 35 of SFAS 140
--> is a Qualifying SPE
--> A Qualifying SPE is NOT Consolidated, SFAS 140, Para. 46

SFAS 166, issued in June 2009, amended the SFAS 140 to delete the concept of QSPE
--> ASC 860-10

[VIE in U.S. GAAP]

FASB Interpretation 46(R), ASC 810-10
Consolidation of Variable Interest Entities
An Interpretation of ARB 51
Issued in January 2003, FIN 46
Revised in December 2003, FIN 46(R)
FIN 46(R) amended by SFAS 167 in June 2009

FIN 46(R), before SFAS 167
--> does not apply to
--> A Qualifying SPE defined by SFAS 140

FIN 46(R), after SFAS 167
--> applies to all entities that had been
--> formerly defined as a Qualifying SPE by SFAS 140

SFAS 167, June 2009
--> amended FIN 46(R) to delete the exception for QSPE

Amendments to FIN 46(R) by SFAS 167 in June 2009

1. Determination of VIE
After SFAS 167
--> FIN46R-5b(1) was amended with new guidance
--> Whether an entity is a VIE may change after SFAS 167

2. Reconsideration of VIE
--> FIN46R-7e was added as an event for reconsideration of VIE

3. Determination of Primary Beneficiary
--> Quantitative approach was deleted
--> "majority" guidance was deleted by amending FIN46R-14

4. Reconsideration of Primary Beneficiary
--> After SFAS 167, reassessment is done on an ongoing basis
--> FIN46R-15, that listed the events triggering reconsideration, was deleted

5. Troubled debt restructuring
--> Before SFAS 167, troubled debt restructuring was not an event
that triggers the reconsideration of VIE or Primary Beneficiary
--> Such exceptions were deleted by amendments to FIN46R-7 and FIN46R-15

6. Additional disclosures
--> Paragraphs 22A - 22E and 23A were added for additional disclosures