Recording consolidating adjustments

[Note: The investment entity consolidation exemption was introduced by Investment Entities, issued on 31 October 2012 and effective for annual periods beginning on or after 1 January 2014.] IFRS 10 contains special accounting requirements for investment entities.

Where an entity meets the definition of an 'investment entity' (see above), it does not consolidate its subsidiaries, or apply IFRS 3 Business Combinations when it obtains control of another entity.

[IFRS ] A parent must not only have power over an investee and exposure or rights to variable returns from its involvement with the investee, a parent must also have the ability to use its power over the investee to affect its returns from its involvement with the investee. When assessing whether an investor controls an investee an investor with decision-making rights determines whether it acts as principal or as an agent of other parties.

A number of factors are considered in making this assessment.

[IFRS ] However, a parent need not present consolidated financial statements if it meets all of the following conditions: [IFRS 10:4(a)] Investment entities are prohibited from consolidating particular subsidiaries (see further information below).

Furthermore, post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee Benefits applies are not required to apply the requirements of IFRS 10.

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IFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls.

Because an investment entity is not required to consolidate its subsidiaries, intragroup related party transactions and outstanding balances are not eliminated [IAS 24.4, IAS 39.80].Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee.IFRS 10 was issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.An investment entity is required to measure an investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.[IFRS ] However, an investment entity is still required to consolidate a subsidiary where that subsidiary provides services that relate to the investment entity’s investment activities.

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