International Financial Reporting Standards_guide.pdf

80 Chapter 7 Consolidated and Separate Financial Statements (IAS 27)
■ Policies: The parent entity has the power to govern the financial and operating policies
of the other entity under a statute or agreement.
■ Board of directors: The parent entity has the power to appoint or remove the majority
of the members of the board of directors.
■ Voting rights of directors: The parent entity has the power to cast the majority of votes
at meetings of the board of directors.
7.3.3 A special purpose entity (or “SPE”) is an entity created to accomplish a narrow and
well-defined objective. An SPE may take the form of an unincorporated entity. SPEs are consolidated
when the substance of the relationship between an SPE and another entity indicates
that the SPE is controlled by that entity. The following circumstances indicate that an entity
substantially controls an SPE:
■ Activities: The activities of the SPE are substantially conducted on behalf of the entity
according to its specific business needs so that the entity obtains all the benefits from
the operations.
■ Decisions and autopilot: The entity has the decision-making power to obtain the
majority of the benefits from the SPE or has delegated these powers by setting up an
autopilot mechanism.
■ Risks and rewards: The entity has rights to the majority of the benefits of the SPE and
is also exposed to the risks incidental to the activities of the SPE.
■ Residual or ownership risk: In substance the entity retains the majority of the residual
or ownership risks related to the SPE or its assets in order to obtain the majority of the
benefits from these assets.
7.3.4 A group is a parent and all of the parent’s subsidiaries.
7.3.5 A parent is an entity that has one or more subsidiaries.
7.3.6 Non-controlling interest (previously called minority interest) is the equity in a subsidiary
not attributable directly or indirectly to the parent.
7.3.7 Separate financial statements are those presented by a parent, an investor in an associate,
or a venturer in a jointly controlled entity, in which the investments are accounted for
on the basis of the direct equity interest rather than on the basis of the reported results and
net assets of the investees.
7.3.8 A subsidiary is an entity, including an unincorporated entity such as a partnership,
that is controlled by another entity (the parent).
7.4 ACCOUNTING TREATMENT
7.4.1 A parent should present consolidated financial statements as if the group were a single
entity.
Consolidated financial statements should include:
■ the parent and all its foreign and domestic subsidiaries (including those that have
dissimilar activities);
■ special purpose entities if the substance of the relationship indicates control (see SIC 12);
■ subsidiaries that are classified as held for sale, although the subsidiary is classified as a
disposal group held for sale and presented as such (refer to IFRS 5 in chapter 18); and