Need to Know: IFRS 10 - Consolidated Financial ... - BDO Canada

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8 IFRS 10 Consolidated Financial Statements2. Effective dateIFRS 10 Consolidated Financial Statements is effective for annual periods beginning on or after 1 January 2013, with earlierapplication being permitted provided that all five of the new consolidation package standards are applied at the same time.In December 2011 the European Financial Reporting Advisory Group (EFRAG) requested the effective date for theconsolidation standards to be deferred to 1 January 2014 to allow preparers sufficient time to implement the new standardsand to align it with the effective date for the proposals for Investment Entities. However at its January 2012 meeting, theInternational Accounting Standards Board (IASB) decided not to postpone the effective date.The consolidation package standards were endorsed for use in the EU at the end of 2012, but have an effective date of1 January 2014, with early adoption permitted. This provides entities that report in accordance with EU-endorsed IFRSadditional time to prepare for the application of the new standards. However, the permission for early adoption allowsEuropean entities, that are Foreign Private Issuers and prepare financial statements for their US filings in accordancewith IFRS as issued by the IASB, to adopt the new standards with effect from 1 January 2013. This is necessary, as theUS authorities require FPIs to prepare financial statements in accordance with IFRS as issued by the IASB.Certain other jurisdictions, such as Singapore, which has incorporated IFRS into its local accounting standards, have alsodelayed the initial adoption of IFRS 10 in order to allow more time for implementation. Unless these jurisdictions permitearly application, entities using those local accounting standards will not be able to claim compliance with IFRS as issued bythe IASB, and will therefore lose a key benefit of the adoption of IFRS (or incorporation of IFRS into local GAAP).In June 2012, the IASB published Consolidated Financial Statements, Joint Arrangements and Disclosures of Interests in OtherEntities: Transition Guidance – Amendments to IFRS 10, IFRS 11 and IFRS 12 which clarify certain aspects when an entitytransitions from the old consolidation standards to the new consolidation standards issued in May 2011. The amendmentsare effective for annual periods beginning on or after 1 January 2013, with early adoption being required if the newconsolidation standards are early adopted. The clarifications are included in section 7.7.3.The IASB has set an effective date for the amendments relating to Investment Entities (see section 8) of 1 January 2014 withearlier application permitted. This is to allow the amendments to be applied at the same time as the initial application ofIFRS 10.
IFRS 10 Consolidated Financial Statements93. Key changes from previous guidanceKey changes from the requirements of IAS 27(2008) Consolidated and Separate Financial Statements andSIC-12 Consolidation—Special Purpose Entities, as included in the IFRS Foundation’s Project Summary andFeedback Statement for IFRS 10, are:IAS 27(2008) and SIC-12 IFRS 10Control as the basis for consolidationIAS 27(2008) identifies control as the basis forconsolidation and focuses on the power to govern thefinancial and operating policies for assessing control oftypical operating entities. In contrast, SIC-12 focuses onrisks and rewards for assessing control of special purposeentities.Control without a majority of voting rightsAlthough the idea that an investor could control aninvestee while holding less than 50% of the voting rightswas implicit in IAS 27(2008), it was not explicitly stated.Potential voting rightsOnly currently exercisable potential voting rights areconsidered when assessing control.Agency relationshipsIAS 27(2008) has no specific guidance regarding situationswhen power is delegated by a principal to an agent.IFRS 10 identifies control as the single basis forconsolidation for all types of entitiesThere is no separate guidance with a differentconsolidation model for special purposes entities; rather,this guidance is incorporated into the single consolidationmodel in IFRS 10. The new control definition reflects thatan investor can achieve power over an investee in manyways, not just through governing financial and operatingpolicies. The investor must assess whether it has rights todirect the relevant activities. Although exposure to risksand rewards is an indicator of control, it is not the solefocus for consolidation for any type of entity.IFRS 10 states that an investor can control and investee withless than 50% of the voting rights of the investeeIFRS 10 provides specific application guidance forassessing control (i.e. de-facto control) in such cases.Potential voting rights need to be considered in assessingcontrol, but only if they are substantivePotential voting rights are substantive when the holderhas the practical ability to exercise its rights and thoserights are exercisable when decisions about the directionof the relevant activities need to be made. Decidingwhether potential voting rights are substantive requiresjudgement. Potential voting rights may need to beconsidered even if they are not currently exercisable.IFRS 10 contains specific application guidance for agencyrelationshipsWhen decision making authority has been delegated by aprincipal to an agent, an agent in such a relationship doesnot control the entity. The principal that has delegatedthe decision-making authority would consolidate theentity. The application guidance offers a range of factorsto consider and contains examples.
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Need to Know: IFRS 10 - Consolidated Financial ... - BDO Canada

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