Financial Accounting B Notes

Week 1-Consolidation and ‘Control’ concept

-Consolidated financial statements (IFRS 10):

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

Purpose of consolidation

1. Supply of relevant information. Information in CFS relevant to investors in the parent entity who have an interest in the group as a whole, not just in the parent entity. Too burdensome to source information from each entity separately.

2. Comparable information. Some entities are organised into group structures such that different activities are undertaken by separate members of the group, while some entities have all activities conducted within one entity. Access to CFS makes the comparative analysis of comparison between entities much easier

3. Accountability. A key purpose of all financial reporting is the discharge of accountability by management. Management of parent entity is not just responsible for management of assets of parent itself, but also the assets of all its subsidiaries. The CFS reports the assets and liabilities under the control of the group management.

4. Reporting risks and benefits.CFS allow and assessment of risks and benefits of managing an entity.

CONTROL AS CRITERION FOR CONSOLIDATION

-IFRS 10: Parent is defined as an entity that controls one or more entities while a subsidiary is a controlled entity.

-Determination of whether control exists is a matter of judgment. Consider all available facts and circumstances. Control is an exclusionary power. In a group there can only be one parent.

-Control of an investee (IFRS 10):

‘An investor controls an investee where the investor is exposed, or has rights,...