International Financial Reporting Standards_guide.pdf

84 Chapter 7 Consolidated and Separate Financial Statements (IAS 27)
■ the nature and extent of any significant restrictions on the ability of the subsidiary to
transfer funds, such as cash dividends, or to repay loans or advances;
■ a schedule showing the effects of any changes in the parent’s ownership interest in a
subsidiary that did not result in the loss of control; and
■ if control is lost, the gain or loss recognized, the line item in which this amount is
included, and the portion of this amount that is attributable to the fair value of the
investment retained in the former subsidiary.
7.5.2 If the parent does not present consolidated financial statements, the parent’s separate
financial statements should include:
■ the fact that the exemption from publishing consolidated financial statements has been
exercised;
■ the name and country of incorporation of the ultimate parent that publishes consolidated
financial statements that comply with IFRS; and
■ a list of significant subsidiaries, associates, and joint ventures, including the names,
countries of incorporation, proportions of interest, and voting rights.
7.5.3 In the parent’s separate financial statements, the following should be stated:
■ a list of subsidiaries, associates, and joint ventures (as per point 7.5.2);
■ the method used to account for investments in subsidiaries, associates, and joint ventures
(either cost or IAS 39); and
■ the fact that the statements are separate and the reasons why they were prepared if not
required by law.
7.5.4 Non-controlling interest should be presented separately within equity in the consolidated
Statement of Financial Position. The balance should consist of the initial amount recognized
per IFRS 3 and the non-controlling interest’s share of changes in equity of the subsidiary
since acquisition date.
7.6 FINANCIAL ANALYSIS AND INTERPRETATION (See also chapter 6, section 6.6)
7.6.1 IAS 27 requires that the financial statements of a parent company and the financial
statements of the subsidiaries that it controls be consolidated. Control of a subsidiary is presumed
when the parent company owns more than 50 percent of the voting rights of a subsidiary,
unless control demonstratively does not exist in spite of the parent’s ownership of a
majority of the voting rights of the subsidiary.
7.6.2 The process of consolidation begins with the Statement of Financial Position and
Statement of Comprehensive Income of the parent and the subsidiary constructed as separate
entities. The parent’s financial statements recognize the subsidiary as an asset (called an
investment in subsidiary) and recognize any dividends received from the subsidiary as
income from subsidiaries.
7.6.3 When the financial statements of the parent and subsidiary are combined, the consolidated
financial statements fully reflect the financial results and financial position of the
parent and subsidiary. Consolidation does, however, pose problems:
■ Combined financial statements of entities in totally different businesses limit analysis
of operations and trends of both the parent and the subsidiary; a problem overcome
somewhat by segment information.
■ Regulatory or debt restrictions might not be easily discernible on the consolidated
financial statements.