Consolidation: differences between full IFRS and IFRS for SMEs

IFRS for SMEs:

  • Section 19 Business Combinations and Goodwill
  • Section 9 Consolidated and Separate Financial Statements
  • Section 14 Investments in Associates
  • Section 15 Investments in Joint Ventures

Full IFRS:

  • IFRS 3 Business Combinations
  • IAS 27 Consolidated and Separate Financial Statements
  • SIC 12 Consolidation — Special Purpose Entities
  • IAS 31 Interests in Joint Ventures
  • IAS 28 Investments in Associates

Main differences between IFRS 3 and IFRS for SMEs section 19:

  • IFRS for SMEs – applies a purchase method of accounting for business combinations whereas IFRS3 applies the acquisition method to account for business combinations.
  • IFRS for SMEs – goodwill is amortised over its useful life. Where this can’t be reliably estimated, a useful life of 10 years is assumed. It is also tested for impairment where there are indicators of impairment under section 27. Under IFRS 3 goodwill is not amortised but rather tested for impairment within IAS36.
  • IFRS for SMEs – acquisition costs will be capitalised, resulting in higher goodwill balances being recorded. Under IFRS, acquisition costs would be accounted for separately and recognised as an expense in the period in which they are incurred.
  • IFRS for SMEs provides preparers with a wider choice of accounting treatment for interests in jointly controlled entities and associates.
    • IFRS requires the use of the equity method in the consolidated accounts (or proportionate consolidation for JCEs).
    • IFRS for SMEs, entities can use the cost model, the equity method or the fair value model, which gives entities much greater flexibility to select a policy most appropriate to their business.
  • Exemptions from preparing consolidated financial statements
    • IFRS for SMEs – Section 9
      • A parent need not present consolidated financial statements if:
        • Both of the following conditions are met:
          • The parent is itself a subsidiary and
          • Its ultimate parent (or any intermediate parent) produces consolidated general purpose financial statements that comply with full IFRS or with IFRS for SMEs or
          • It has no subsidiaries other than one that was acquired with the intention of selling or disposing of it within one year.
        • A parent accounts for such a subsidiary:
          • At fair value with changes in fair value recognised in  profit or loss, if the fair value of the shares can be measured reliably or
          • Otherwise at cost less impairment.
        • IFRS 10 paragraph 4. Two exemptions are available:
          • A parent need not present consolidated financial statements if:
            • All of the following conditions are met:
              • The parent is itself a subsidiary and
            • none of its owners object, and
              • it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements)
            • its shares/debt instruments are not traded in a public market, and
              • a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets
            • it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market, and
            • a higher-level parent produces publicly-available IFRS consolidated financial statements.
              • its ultimate or any intermediate parent produces financial statements that are available for public use and comply with IFRSs, in which subsidiaries are consolidated or measured at fair value through profit or loss in accordance with this IFRS.
            • A parent that is an investment entity must not present consolidated financial statements if it is required to measure all of its subsidiaries at fair value through profit or loss.
              • an investment entity has several investors that are not related parties of either the entity or other members of its group.

Before adopting IFRS for SMEs or IFRS the different requirements should be considered as these differences may be significant to some entities that have large group structures or are highly acquisitive.

For more information, contact ERH Accountants.