Consolidated Financial Statements: Key Principles

Consolidated Financial Statements

When Consolidated Financial Statements Cannot Be Compiled

Determine when a parent entity, which is itself a subsidiary, is *not* required to prepare consolidated financial statements:

• When the ultimate parent entity produces consolidated general-purpose financial statements that comply with full IFRSs or with IFRS for SMEs.
• When an entity has no subsidiaries other than one that was acquired with the intention of selling or disposing of it within one year.

Presumption of Control

Identify the circumstances under which control is presumed to exist:

• When the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity.
• When the parent owns half or less of the voting power of an entity, but it has power over more than half of the voting rights by virtue of an agreement with other investors.
• When the parent owns half or less of the voting power of an entity, but it has the power to govern the financial and operating policies of the entity under a statute or an agreement.
• When the parent owns half or less of the voting power of an entity, but it has the power to appoint or remove the majority of the members of the board of directors or equivalent governing body, and control of the entity is by that board or body.

Order of Consolidation Procedures

The correct order of procedures for compiling consolidated financial statements is:

1. Combine the financial statements of the parent and its subsidiaries line by line, adding together like items of assets, liabilities, equity, income, and expenses.
2. Eliminate the carrying amount of the parent's investment in each subsidiary and the parent's portion of the equity of each subsidiary.
3. Measure and present non-controlling interest in the profit or loss of consolidated subsidiaries for the reporting period separately from the interest of the owners of the parent.
4. Measure and present non-controlling interest in the net assets of consolidated subsidiaries separately from the parent shareholders' equity in them.

True Statements

• The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall be prepared as of the same reporting date and using uniform accounting policies for like transactions and other events and conditions in similar circumstances.
• An entity shall disclose non-controlling interest in the profit or loss of the group separately in the statement of comprehensive income.

Disclosure Requirements in Consolidated Financial Statements

The following information should be disclosed:

• The basis for concluding that control exists when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power.
• Any difference in the reporting date of the financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements.