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Consolidated and Separate Financial Statements

SME Par. IFRS SME U.S. GAAP
Scope of this section
9.1 This section defines the circumstances in which an entity presents consolidated financial statements and the procedures for preparing those statements. It also includes guidance on separate financial statements and combined financial statements.  
Requirement to present consolidated financial statements
9.2 Except as permitted or required by paragraph 9.3, a parent entity shall present consolidated financial statements in which it consolidates its investments in subsidiaries in accordance with this IFRS. Consolidated financial statements shall include all subsidiaries of the parent. See 9.3.
9.3 A parent need not present consolidated financial statements if:
  1. both of the following conditions are met:
  2. the parent is itself a subsidiary, and
  3. its ultimate parent (or any intermediate parent) produces consolidated general purpose financial statements that comply with full IFRSs or with this IFRS; or
    1. it has no subsidiaries other than one that was acquired with the intention of selling or disposing of it within one year. A parent shall account for such a subsidiary:
  4.  at fair value with changes in fair value recognised in profit or loss, if the fair value of the shares can be measured reliably, or
  5. otherwise at cost less impairment (see paragraph 11.14(c)).
 Unlike IFRS SMEs, there are no exemptions from consolidating subsidiaries in general-purpose financial statements.

Unlike IFRS SMEs, a subsidiary is consolidated even if was acquired with the intention of selling or disposing of it.
9.4 A subsidiary is an entity that is controlled by the parent. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. If an entity has created a special purpose entity (SPE) to accomplish a narrow and well-defined objective, the entity shall consolidate the SPE when the substance of the relationship indicates that the SPE is controlled by that entity (see paragraphs 9.10–9.12). Like IFRS SMEs, consolidation is based on control, which is the continuing power to govern the financial and operating policies of an entity.  However, unlike IFRS SMEs, there is no explicit linkage between the ability to control and obtaining ownership benefits from the entity’s activities.
9.5 Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. That presumption may be overcome in exceptional circumstances if it can be clearly demonstrated that such ownership does not constitute control. Control also exists when the parent owns half or less of the voting power of an entity but it has:
  1. power over more than half of the voting rights by virtue of an agreement with other investors;
  2. power to govern the financial and operating policies of the entity under a statute or an agreement;
  3. power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body; or
  4. power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or  body.
 Control is presumed to exist in all of the circumstances stated in 9.5.  In addition, control is presumed to exist if an investor is the sole general partner or managing member in a limited partnership or limited liability company.

Like IFRS SMEs, the presumption of control may be rebutted if it can be demonstrated clearly that control does not exist.  This would occur when the minority shareholders or limited partners have substantive participating rights or other equivalent rights (e.g., kick-out rights over the general partner in a limited partnership).  Because U.S. GAAP contains specific guidance on the determination of whether the minority (or limited partners in the case of a limited partnership) rights are substantive or participating, differences from IFRS SMEs may arise in practice.
9.6 Control can also be achieved by having options or convertible instruments that are currently exercisable or by having an agent with the ability to direct the activities for the benefit of the controlling entity. Unlike IFRS SMEs, potential voting rights are not taken into account for non-variable interest entities.
9.7 A subsidiary is not excluded from consolidation simply because the investor is a venture capital organisation or similar entity. Generally, the same.  However, unlike IFRS SMEs, investment companies, including venture capital investment companies, do not consolidate investees other than operating companies that provide services to the investment company.
9.8 A subsidiary is not excluded from consolidation because its business activities are dissimilar to those of the other entities within the consolidation. Relevant information is provided by consolidating such subsidiaries and disclosing additional information in the consolidated financial statements about the different business activities of subsidiaries. Like IFRS SMEs, a subsidiary is not excluded from consolidation because its business activities are dissimilar to those of the other entities within the consolidation.
9.9 A subsidiary is not excluded from consolidation because it operates in a jurisdiction that imposes restrictions on transferring cash or other assets out of the jurisdiction. Under U.S. GAAP, a subsidiary is excluded from consolidation if it operates under foreign exchange restrictions so severe that they cast significant doubt on the parent’s ability to control the subsidiary.
Special purpose entities
9.10 An entity may be created to accomplish a narrow objective (eg to effect a lease, undertake research and development activities or securitise financial assets). Such an SPE may take the form of a corporation, trust, partnership or unincorporated entity. Often, SPEs are created with legal arrangements that impose strict requirements over the operations of the SPE. U.S. GAAP has the concepts of variable interest entities (VIEs) and, for annual reporting periods beginning before November 16, 2009, “qualifying special purpose entities” (QSPEs).  U.S. GAAP does not contain a concept of a special purpose entity other than a qualifying special purpose entity.   

A VIE is an entity in which the equity at risk either (a) is insufficient for the entity to finance its own operations without additional subordinated financial support or (b) lacks certain characteristics of a controlling financial interest.  Many entities that are VIEs under U.S. GAAP meet the definition of an SPE under IFRS SMEs.  Because the VIE model does not require a narrow and well-defined objective, however, many VIEs under U.S. GAAP would not be SPEs under IFRS SMEs.
9.11 An entity shall prepare consolidated financial statements that include the entity and any SPEs that are controlled by that entity. In addition to the circumstances described in paragraph 9.5, the following circumstances may indicate that an entity controls an SPE (this is not an exhaustive list):
  1. the activities of the SPE are being conducted on behalf of the entity according to its specific business needs.
  2. the entity has the ultimate decision-making powers over the activities of the SPE even if the day-to-day decisions have been delegated.
  3. the entity has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incidental to the activities of the SPE.
  4. the entity retains the majority of the residual or ownership risks related to the SPE or its assets.
 Under U.S. GAAP, all consolidation decisions are evaluated first under the VIE model. 

Whereas under IFRS SMEs, the concept of economic benefit or risk is just one part of the analysis, consolidation decisions under the VIE model are driven solely by the right to receive expected residual returns or exposure to expected losses.  If one party is exposed to the majority of the expected losses and another party is entitled to the majority of the expected residual returns, the party exposed to the expected losses consolidates.
9.12 Paragraphs 9.10 and 9.11 do not apply to post-employment benefit plans or other long-term employee benefit plans to which Section 28 Employee Benefits applies. Same.
Consolidation procedures
9.13 The consolidated financial statements present financial information about the group as a single economic entity. In preparing consolidated financial statements, an entity shall:
  1. combine the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses;
  2. eliminate the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary;
  3. measure and present non-controlling interest in the profit or loss of consolidated subsidiaries for the reporting period separately from the interest of the owners of the parent; and
  4. measure and present non-controlling interest in the net assets of consolidated subsidiaries separately from the parent shareholders’ equity in them. Non-controlling interest in the net assets consists of:
    1. the amount of the non-controlling interest at the date of the original combination calculated in accordance with Section 19 BusinessCombinations and Goodwill, and
    2. the non-controlling interest’s share of changes in equity since the date of the combination.
 Unlike IFRS SMEs, unless the acquiree is a VIE, minority interests are measured based on the carrying amounts of the acquiree’s assets and liabilities in the consolidated financial statements of the acquiree.
9.14 The proportions of profit or loss and changes in equity allocated to the owners of the parent and to the non-controlling interest are determined on the basis of existing ownership interests and do not reflect the possible exercise or conversion of options or convertible instruments. Same.
  Intragroup balances and transactions
9.15 Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and property, plant and equipment, are eliminated in full. Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements (see Section 27 Impairment of Assets). Section 29 Income Tax applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions. Like IFRS SMEs, intragroup balances and transactions, and resulting profits, generally are eliminated in full regardless of whether the unearned profit is in the parent or the subsidiary.  However, fees or other sources of income or expense between a primary beneficiary and a consolidated variable interest entity (VIE) are eliminated against the related expense or income of the VIE.  The result is that the net income or expense of the VIE is attributed to the primary beneficiary (and not to the noncontrolling interests) in consolidated financial statements.
  Uniform reporting date
9.16 The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall be prepared as of the same reporting date unless it is impracticable to do so. Unlike IFRS SMEs, a parent may elect to use a date of no more than three months from its reporting date for a subsidiary without demonstrating that it is impracticable to use the parent’s reporting date.
  Uniform accounting policies
9.17 Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events and conditions in similar circumstances. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. Unlike IFRS SMEs, uniform accounting policies within the group are not required.  Also unlike IFRS SMEs, specialized accounting at the subsidiary level is required to be retained in certain circumstances.
  Acquisition and disposal of subsidiaries
9.18 The income and expenses of a subsidiary are included in the consolidated financial statements from the acquisition date. The income and expenses of a subsidiary are included in the consolidated financial statements until the date on which the parent ceases to control the subsidiary. The difference between the proceeds from the disposal of the subsidiary and its carrying amount as of the date of disposal, excluding the cumulative amount of any exchange differences that relate to a foreign subsidiary recognised in equity in accordance with Section 30 Foreign Currency Translation, is recognised in the consolidated statement of comprehensive income (or the income statement, if presented) as the gain or loss on the disposal of the subsidiary. Unlike IFRS SMEs, U.S. GAAP includes (i.e., reclassifies into profit or loss) the cumulative amount of exchange differences that relate to a foreign subsidiary recognized in equity in the gain or loss on disposal of the subsidiary.
9.19 If an entity ceases to be a subsidiary but the investor (former parent) continues to hold an investment in the former subsidiary, that investment shall be accounted for as a financial asset in accordance with Section 11 Basic Financial Instruments or Section 12 Other Financial Instruments Issues from the date the entity ceases to be a subsidiary, provided that it does not become an associate (in which case Section 14 Investments in Associates applies) or a jointly controlled entity (in which case Section 15 Investments in Joint Ventures applies). The carrying amount of the investment at the date that the entity ceases to be a subsidiary shall be regarded as the cost on initial measurement of the financial asset. Like IFRS SMEs, the carrying amount of the investment at the date that the entity ceases to be a subsidiary is deemed to be its cost for the purpose of subsequent accounting.
  Non-controlling interest in subsidiaries
9.20 An entity shall present non-controlling interest in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent, as required by paragraph 4.2(q). Same.
9.21 An entity shall disclose non-controlling interest in the profit or loss of the group separately in the statement of comprehensive income, as required by paragraph 5.6 (or in the income statement, if presented, as required by paragraph 5.7). Same.
9.22 Profit or loss and each component of other comprehensive income shall be attributed to the owners of the parent and to the non-controlling interest. Total comprehensive income shall be attributed to the owners of the parent and to the non-controlling interest even if this results in the non-controlling interest having a deficit balance. Unlike IFRS SMEs, losses that exceed the minority interests in the equity of a subsidiary may create a debit balance in minority interests only if the minority has an obligation to fund the losses and is able to make an additional investment to cover the losses; otherwise the losses are attributed to the parent.  If the subsidiary subsequently reports profits, the profits are allocated to the majority interest until the losses absorbed by the majority interest have been recovered.
Separate financial statements
  Presentation of separate financial statements
9.24 Paragraph 9.2 requires a parent to present consolidated financial statements. This IFRS does not require presentation of separate financial statements for the parent entity or for the individual subsidiaries. Same.
9.25 The financial statements of an entity that does not have a subsidiary are not separate financial statements. Therefore, an entity that is not a parent but is an investor in an associate or has a venturer’s interest in a joint venture presents its financial statements in compliance with Section 14 or Section 15, as appropriate. It may also elect to present separate financial statements.  
  Accounting policy election
9.26 When a parent, an investor in an associate, or a venturer with an interest in a jointly controlled entity prepares separate financial statements and describes them as conforming to the IFRS for SMEs, those statements shall comply with all of the requirements of this IFRS. The entity shall adopt a policy of accounting for its investments in subsidiaries, associates and jointly controlled entities either:
  1. at cost less impairment, or
  2. at fair value with changes in fair value recognised in profit or loss.


The entity shall apply the same accounting policy for all investments in a single class (subsidiaries, associates or jointly controlled entities), but it can elect different policies for different classes.		 Unlike IFRS SMEs, the cost method is not permitted for investments in investees over which the investor has the ability to exercise significant influence or over which it shares joint control.

Like IFRS SMEs, U.S. GAAP allows investors to elect to account for investments that would otherwise be accounted for under the equity method at fair value.  Unlike IFRS SMEs, however, the election is made on an investee-by-investee basis.  Also unlike IFRS SMEs, when the fair value option is elected, it must be applied to all of the investor’s financial interests in the same entity (equity and debt, including guarantees) that are eligible items.
Combined financial statements
9.28 Combined financial statements are a single set of financial statements of two or more entities controlled by a single investor. This IFRS does not require combined financial statements to be prepared. U.S. GAAP does not specifically require, but permits, the preparation of combined financial statements.  Unlike IFRS SMEs, combined financial statements may also be prepared for companies under common management.
9.29 If the investor prepares combined financial statements and describes them as conforming to the IFRS for SMEs, those statements shall comply with all of the requirements of this IFRS. Intercompany transactions and balances shall be eliminated; profits or losses resulting from intercompany transactions that are recognised in assets such as inventory and property, plant and equipment shall be eliminated; the financial statements of the entities included in the combined financial statements shall be prepared as of the same reporting date unless it is impracticable to do so; and uniform accounting policies shall be followed for like transactions and other events in similar circumstances. Like IFRS SMEs, intercompany transactions and profits or losses are eliminated and, if there are problems in connection with such matters as minority interests, foreign operations, different fiscal periods, or income taxes, they are treated in the same manner as in consolidated statements.  Like IFRS SMEs, U.S. GAAP makes no statement as to the appropriate presentation of the stockholders’ equity section of the combined balance sheet.
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