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BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION

BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION

BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION: IFRS 10 Consolidated Financial Statements traces the prerequisites for the readiness and introduction of merged money related articulations, expecting substances to unite elements it controls. Control requires introduction or rights to variable returns and the capacity to influence those profits through control over an investee.

BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION: The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities

The Standard:

  • requires a parent entity (an entity that controls one or more other entities) to present consolidated financial statements
  • defines the principle of control, and establishes control as the basis for consolidation
  • set out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee
  • sets out the accounting requirements for the preparation of consolidated financial statements
  • defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity*.

BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION

An investor determines whether it is a parent by assessing whether it controls one or more investees. An investor considers all relevant facts and circumstances when assessing whether it controls an investee. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. [IFRS 10:5-6; IFRS 10:8]

An investor controls an investee if and only if the investor has all of the following elements: [IFRS 10:7]

  • power over the investee, i.e. the investor has existing rights that give it the ability to direct the relevant activities (the activities that significantly affect the investee’s returns)
  • exposure, or rights, to variable returns from its involvement with the investee
  • the ability to use its power over the investee to affect the amount of the investor’s returns.

BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION

Power arises from rights. Such rights can be straightforward (e.g. through voting rights) or be complex (e.g. embedded in contractual arrangements). An investor that holds only protective rights cannot have power over an investee and so cannot control an investee .

An investor must be exposed, or have rights, to variable returns from its involvement with an investee to control the investee. Such returns must have the potential to vary as a result of the investee’s performance and can be positive, negative, or both.

A parent must not only have power over an investee and exposure or rights to variable returns from its involvement with the investee, a parent must also have the ability to use its power over the investee to affect its returns from its involvement with the investee.

When assessing whether an investor controls an investee an investor with decision-making rights determines whether it acts as principal or as an agent of other parties. A number of factors are considered in making this assessment. For instance, the remuneration of the decision-maker is considered in determining whether it is an agent.

BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION

There are no disclosures specified in IFRS 10. Instead, IFRS 12 Disclosure of Interests in Other Entities outlines the disclosures required.

BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION

Note: This section has been updated to reflect the amendments to IFRS 10 made in June 2012 and October 2012.

IFRS 10 is applicable to annual reporting periods beginning on or after 1 January 2013

Retrospective application is generally required in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors [IFRS 10:C2]. However, an entity is not required to make adjustments to the accounting for its involvement with entities that were previously consolidated and continue to be consolidated, or entities that were previously unconsolidated and continue not to be consolidated at the date of initial application of the IFRS

Furthermore, an entity is not required to present the quantitative information required by paragraph 28(f) of IAS 8 for the annual period immediately preceding the date of initial application of the standard (the beginning of the annual reporting period for which IFRS 10 is first applied).  However, an entity may choose to present adjusted comparative information for earlier reporting periods, any must clearly identify any unadjusted comparative information and explain the basis on which the comparative information has been prepared.

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BASIS FOR CONCLUSIONS ON IFRS 10 INTRODUCTION

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