This is what this is about: IFRS 10 Cases of no consolidation requirements. This requires all parent entities to present consolidated financial statements, other than:
parent entities that are investment entities (see exception in link). These are an exception to consolidation if they are required (in accordance with IFRS 10 31) to measure all of their subsidiaries at fair value through profit or loss [IFRS 10 4B].
intermediate parent entities that meet the strict conditions for exemption, which are set out below:
IFRS 10 Cases of no consolidation requirements
Conditions for a parent entity to be exempt from consolidation [IFRS 10 4]
A parent is not required to present consolidated financial statements if it meets all the following conditions:
In practice, questions do arise on whether the consolidation exemption is available in particular circumstances. The following examples provide guidance on three common issues: Consolidation exceptions and exemptions
Example – Ultimate parent with different year-end IFRS 10 Cases of no consolidation requirements
Entity IP1 is an intermediate parent company, wholly owned by Entity UP1 (the ultimate parent entity). Entity IP1’s reporting date is 30 September and Entity UP1’s is 31 December. Assuming the stated conditions in IFRS 10 4 are met, does the difference in reporting date preclude use of the consolidation exemption?
No. The consolidation exemption does not require the ultimate or higher level parent to have the same reporting date as the reporting entity seeking to apply the exemption. Accordingly, Entity IP1 meets the conditions for exemption from presenting consolidated financial statements if the other stated conditions in IFRS 10 4 are met.
Example – Immaterial intermediate parent IFRS 10 Cases of no consolidation requirements
Entity IP2 is an intermediate parent company, wholly owned by Entity UP2 (the ultimate parent entity). From Entity UP2’s perspective, Entity IP2 and its subsidiaries are immaterial. For this reason, Entity UP2 does not actually consolidate these entities. Is use of the consolidation exemption by Entity IP2 possible in this situation?
In our view, the consolidation exemption is still available in these circumstances (assuming the stated conditions in IFRS 10 4 are met). This is because Entity UP2’s consolidated financial statements can still assert compliance with IFRSs if genuinely immaterial subsidiaries have been omitted from the consolidation. However, great care should be taken in assessing whether the effect of not consolidating really is immaterial.
Example – Ultimate parent’s financial statements not yet available Consolidation exceptions and exemptions
Entity IP3 (domiciled in Country X) is an intermediate parent company, wholly owned by Entity UP3 (which is domiciled in Country Y). Both have a reporting date of 31 December. However, Entity IP3’s filing deadline (in accordance with the law in Country X) is three months after year-end, and Entity UP3’s (in accordance with the law in Country Y) is six months. Both entities file financial statements on the legal deadline, so Entity UP3’s consolidated financial statements are not available for public use when Entity IP3’s are filed. Does this preclude use of the consolidation exemption by Entity IP3?
In our view, the consolidation exemption is not dependent on the higher level consolidated financial statements for the same accounting period being available on or before the date of approval or filing of the intermediate parent’s financial statements. The requirement is instead that the higher level parent produces consolidated financial statements that will be publicly available in due course.
Continue reading: Assessment of investment entities
See also: The IFRS Foundation
IFRS 10 Cases of no consolidation requirements IFRS 10 Cases of no consolidation requirements