IFRS 10 set the rules and principles for preparing Consolidated Financial Statements when an entity owns one or more other entities. It also includes the history and background of the IFRS 10 that how it came into existence.

2. Advance Financial Accounting

3. Topic
IFRS 10
Presented By
BaBer Ali
Mujtaba Ahmad
BS-COM_7th
Roll No# 29 & 33

4. Presented to
Sir: Aurangzeb Khan
Date: 14th Jan, 2019

5.  What is IFRS 10?
 Background
 Objectives
 Scope
 Control
 Power
 Accounting Requirements
 IFRS 10 Exceptions: Investment Entities

6.  Introduction:
“The Accounting Standards IFRS 10 sets the rules for preparing and
presenting consolidated financial Statements when an entity controls one
or more other entities.”

7. IAS 27 Consolidated Financial Statement and Accounting for
investment in subsidiaries. (Issued)
IAS 27 Consolidated and Separate Financial Statements
(Renamed)
IAS 27 Separate Financial
Statements
IFRS 10 Consolidated
Financial Statements
2001
2003
2011
IFRS 10 was amended in 2012
and applied from 1 Jan 2013.

8.  Why IFRS 10 was introduced?
o SIC – 12 Consolidation – Special purpose entities has caused
contradiction with IAS 27 in respect to control
 IAS – 27 : Govern the operating and financial policy decision of an
entity.
 SIC – 12 : Control the entity + the intention to gain profit form its
operations.
 NOW : IFRS 10: “ An investor controls an investee when it is exposed
or has rights, to variable returns from its involvement with the investee
and the ability to affect those returns through its power over the
investee.”

9.  Control can be :
• You have 51% voting Rights.
• You have 100% control.

10.  To establish principles for the presentation and preparation of consolidated
financial statements when an entity controls one or more other entities.
 In Order to meet the Objective;
 requires an entity (the parent) that controls one or more other entities
(subsidiaries) to present consolidated financial statements;
 defines the principle of control, and establishes control as the basis for
consolidation;
 sets out how to apply the principle of control to identify whether an
investor controls an investee and therefore must consolidate the
investee; and
 sets out the accounting requirements for the preparation of consolidated
financial statements.

11.  An entity that is a parent shall present consolidated financial statements. This IFRS
applies to all entities, except as follows:
 a parent need not present consolidated financial statements if it meets all the
following conditions:
• it is a wholly or partially-owned subsidiary of another entity and all its other
owners, including those not otherwise entitled to vote, and they do not object to,
the parent not presenting consolidated financial statements;
• its debt or equity instruments are not traded in a public market;
• it did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of issuing
any class of instruments in a public market; and
• its ultimate or any intermediate parent produces consolidated financial
statements that are available for public use and comply with IFRSs.

12.  An investor controls an investee if and only if the investor has all the
following elements:
o Power over the investee
o Rights to variable returns
o Ability to use power over the investee to affect the amount of the
investor’s return.
 Power over an investee arise from rights, Which can be straightforward(i.e.
Voting rights, rights to appoint BOD) or complex (e.g. per contractual
arrangement).

13.  An investor must be exposed (or, has rights,) to variable returns from its
involvement with the investee in order to control it.
o These returns must have the ability to vary as a results of the investee’s
performance and can be positive, negative or both.
o The investor’s power must be used to affect or influence the returns.
 There must be a clear ability of the parent to use its power to affect the
returns of the investee to which it is exposed or has rights.

14.  An investor has the power over the investee when the investor has existing
rights that give it the current ability to direct the relevant activities.(i.e.
activities that significantly affects the investee’s return.)
o Must be substantive (Practical ability to exercise power).
o Protective rights do not provide power
o Potential voting rights needs to be currently exercisable and must take
into account the economic reality (i.e. it is practical to exercise)

15.  Why Protective rights do not provide power?
o E.g. when an entity entering into a contract, certain terms and conditions
exists that protects the party under certain conditions.
o These rights only apply under those conditions and are therefore not
substantive in all circumstances, therefore not seen as a power.
 De factor Control :
o Power that exist with less than 50% of voting rights
o Example :
 Parententity own 20% of voting rights and the reminder of the voting
rights (80%) spread over 2000 shareholders countrywide.

16.  Potential voting rights?
o Substantive potential voting rights (PVR) can give the holder power.
o Consider the terms and conditions, including;
 Whether there are any barriers that prevent the holder from exercising.
 Whether exercise of the rights would be beneficial to the holder.
 Whether the rights are exercisable when decisions need to be made.

17.  Delegated rights :
o An agent is party engaged to act on behalf of another party (The principal)
o Principal may designated power to the agent.
o Agent cannot control the investee (IFRS 10)
o However, if agent gains benefits form the arrangement, the agent could be
registered as a “Principal” and could then control the investee.
o Consider the rights, discretion, range of decisions, level of involvement,
financial benefits.
o Relevant to : investment fund and asset manager etc.

18. Accounting
Procedures and
Requirements Applied
Here
The Financial Statement of a group presented as those of a single
economic entity.

19.  Consolidated Procedures :
o Combine like items of assets, liabilities, equity, income, expenses and cash
flow of the parent with those of its subsidiaries.
o Offset (eliminate) :
 Carrying amount of parent’s investment in subsidiary.
 Parent’s portion of equity of each subsidiary.
o Offset (eliminate) Items related to intragroup transaction.
o The same reporting dates are required
 If not practicable – use the most recent annual financial statement of the
subsidiary and adjust for significant events or transactions.

20.  Non-Controlling interests (NCI) :
o Remains part of equity, separate from equity attributable to owners of
the parent.
o Profit or loss and items of owner’s control interest are attributed to the
owners of the parent and the NCI based on the present ownership
interests.
o Total comprehensive income to be attributed to owners of the parent and
NCI.

21.  Changes in ownership interest:
o IF they do not result in a loss of control over the subsidiary by parent:
 Recognize resulting gain or loss on disposal in equity directly.
 Goodwill not adjusted , as no loss of control.
o Where control is lost by the parent, the parent;
 Derecognizes assets and liabilities from the consolidated statement of
financial position
 Recognizes the gain or loss associated with the loss of the control
directly in profit or loss.

22.  Disclosure :
o IFRS 12 disclosure of the interest in other entities deals with the
disclosure requirements.
o No disclosure requirements in terms of IFRS 10.

23.  Applicable 1st January 2014.
 IFRS 10 sets several exceptions op parents who do not present consolidated
Financial Statements and investment entities are one of them.
 What is a Investment Entity?
o It is an entity;
 Obtains funds from investors-Investment management services.
 Its business purpose it invest funds for returns.
 Measure performance of investments on a fair value basis.