IFRS 10

Consolidated Financial Statements

1Objective and scope

IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. It defines the principle of control, and requires the parent to present consolidated financial statements combining itself and its subsidiaries as a single economic entity.

2Key definitions

Control

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.

Power

Existing rights that give the current ability to direct the relevant activities - the activities that significantly affect the investee's returns.

Non-controlling interest

Equity in a subsidiary not attributable, directly or indirectly, to the parent, presented within equity in the consolidated statement of financial position, separately from the equity of the owners of the parent.

3The three-element control model

IFRS 10 assesses control using three elements together, all of which must be present: power over the investee; exposure, or rights, to variable returns from involvement with the investee; and the ability to use power to affect the amount of the investor's returns. This replaces the old bright-line 'majority of voting rights' test with a broader model that also captures potential voting rights (e.g. currently exercisable options or convertible instruments), contractual arrangements, and de facto control (e.g. a large minority shareholding combined with a wide dispersion of the remaining shares among many other holders).

4Consolidation procedures and disclosure

Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries, line by line
Eliminate the carrying amount of the parent's investment in each subsidiary against the parent's portion of that subsidiary's equity (recognising goodwill per IFRS 3 in the process)
Eliminate in full intragroup balances, transactions, and unrealised profits or losses on assets (such as inventory or PPE) resulting from intragroup transactions
Present non-controlling interest within equity, separately from the parent's own equity
A subsidiary's results are included in the consolidated financial statements from the date control is obtained until the date control is lost
Disclose significant judgements made in determining control, the composition of the group, and any significant restrictions on a subsidiary's ability to transfer funds to the parent

5Examinable focus

What KASNEB tests

Full group accounts preparation, combining a parent and one or more subsidiaries, with goodwill computation (IFRS 3), non-controlling interest, and elimination of intragroup balances and unrealised profit on inventory or PPE sold within the group, is one of the most heavily examined single topics across every KASNEB financial reporting paper. Applying the control model to potential voting rights or de facto control scenarios is the recurring written variant.