This blog is written by Mr. Omar Rafeh, Senior Associate Taxation Advisory Services. Please read this blog and provide your valued comments.

Scope of IAS 27

During the course of studying ACCA, Consolidated financial statements was one of my favourite topics. It is one of the important topics in ACCA paper F3 (financial accounting) and paper F7 (financial reporting). However I still have to prepare them in real life to fully understand the concept.

1 This Standard shall be applied in the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent. Consolidated financial statements are the financial statements of a group which are presented as a single economic entity. A group is a parent and all its subsidiaries

2 This Standard does not deal with methods of accounting for business combinations and their effects on consolidation, including goodwill arising on a business combination (see IFRS 3Business Combinations).

3 This Standard can be applied in accounting for investments in subsidiaries, jointly controlled entities and associates.

Consolidation procedures

In preparing consolidated financial statements, the financial statements of the parent and its subsidiaries are added together, like assets, liabilities, equity, income and expenses. The following steps are taken to present the financial information of a group as a single entity

(a)  Investment and equity of a parent in each subsidiary is eliminated

(b)  Non-controlling interests in the profit or loss of consolidated subsidiaries for the reporting period are highlighted

(c) Non-controlling interests in the net assets of consolidated subsidiaries are highlighted separately from the parent’s ownership interests in them. Non-controlling interests in the net assets consist of:

(i) the amount of those non-controlling interests at the date of the original combination calculated in accordance with IFRS 3; and

(ii) the non-controlling interests’ share of changes in equity since the date of the combination.

Inter group balances and transactions, including income, expenses and dividends are not considered. Profits and losses resulting from inter group transactions that are recognised in asset like stock and fixed assets are eliminated in full.

The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements should be prepared on the same date. If the accounting period of the parent is different from its subsidiary, the subsidiary prepares additional financial statements as of the same date as the financial statements of the parent.

Omar Rafeh