Consolidations – IFRS10

IFRS 10 applies only to consolidated financial statements. Requirements on preparing separate financial statements are retained in IAS 27.

Paragraph 4 of IFRS 10 provides relief whereby a parent need not present consolidated financial statements if it meets particular conditions, including the requirement that “its ultimate or any intermediate parent produces consolidated financial statements that are available for public use and comply with IFRSs.”

There are two issues to be addressed.

  1. Whether the exemption is applicable if its ultimate or any intermediate parent is an investment entity which prepares consolidated financial statements but measures investees at fair value.
  2. Whether the intermediate parent loses the exemption if the ultimate parent does not present consolidated financial statements. This would be the case if the parent entity prepares one set of financial statements in which it accounts for all of the investments at fair value, because it does not have a subsidiary which provides investment-related services. A subsidiary relationship triggers a consolidation.

Assessing when one entity controls another (in other words, when a parent-subsidiary relationship exists) is essential to the preparation of financial statements in accordance with International Financial Reporting Standards (IFRS). The control assessment determines which entities are consolidated in a parent’s financial statements and therefore affects a group’s reported results, cash flows and financial position – and the activities that are ‘on’ and ‘off’ the group’s balance sheet. Under IFRS, this control assessment is accounted for in accordance with IFRS 10 ‘Consolidated financial statements’.

IFRS 10 applies to all entities (including structured entities) except long-term employment benefit plans within the scope of IAS 19 ‘Employee Benefits’.

There are 2 main exemptions:

  1. 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.


  1. A parent that is itself a subsidiary of another entity (an intermediate parent) need not present consolidated financial statements if it meets ALL these strict conditions:
  • none of its owners object
    • 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
    • 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
  • 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.

IFRS 10 retains established principles on consolidation procedures, including:

  • elimination of intra-group transactions and balances
  • eliminate the parent’s investment in each subsidiary
  • eliminate share capital in subsidiary issued to parent
  • uniform accounting policies
  • the need for financial statements used in consolidation to have the same reporting date
  • accounting for changes in ownership interests without loss of control
  • accounting for losing control of a subsidiary.
  • combine like items of assets, liabilities, equity, income, expenses and cash flows from the financial statements of each group entity
  • recognise goodwill and other business combination related adjustments
  • allocate comprehensive income and equity between the parent and any non-controlling interests.

For more information, contact ERH Accountants.