IFRS 10 Consolidated Financial Statements

IFRS 10 replaces those parts of IAS 27 that relate to consolidated financial statements (IAS 27 revised now concentrates on separate financial statements only), and SIC 12 in its entirety.

IFRS 10 uses control as the single basis for consolidation, and requires that all three of the following are in place in order to establish control and so consolidate an investee:

• Power over the investee
  Power is the ability to direct those activities which significantly affect the investee's returns. It arises from rights, which may be straightforward (eg, through voting rights) or complex (eg, through one or more contractual arrangements).
• Exposure, or rights, to variable returns from involvement with the investee
  Returns must have the potential to vary as a result of the investee's performance and can be positive, negative or both.
• The ability to use power over the investee to affect the amount of the investor's returns.

When assessing whether control exists, an investor with decision making rights should establish whether it is acting as a principal or agent of other parties. An investor that is an agent does not control an investee when it exercises decision-making rights delegated to it.

Where an investee is controlled, it is consolidated. IFRS 10 guidance on the consolidation process does not differ from that given by IAS 27 (2008). In other words:

• The parent company should prepare consolidated financial statements using uniform accounting policies.
• Like items of the parent's and subsidiaries' assets, liabilities, equity, income and expenses are combined.
• The carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary is offset, with any related goodwill accounted for in accordance with IFRS 3.
• Intra-group assets, liabilities, equity, income, expenses and cash flows are eliminated in full, as are any unrealised profits.
• Non-controlling interests are presented within equity;
• Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are accounted for within equity.
• Where control is lost, a gain or loss on disposal arises, and the carrying value of any remaining investment is revalued to fair value.

IFRS 10 does not include any disclosure requirements; these are included in IFRS 12 Disclosure of Interests in Other Entities.