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CONSOLIDATED AND SEPARATE
FINANCIAL STATEMENTS (lAS 27)
1.
SCOPE
The Standard is to be applied in preparing the consolidated financial statements of groups of com–
panies controlled by a parent entity .
2. DEFINITIONS OF KEY TERMS (in accordance with lAS 27)
Consolidated financial statements. The financial statements of a group shown as those of a
single economic entity.
Subsidiary. An entity controlled by another entity.
Parent. An entity that has one or more subsidiaries.
Control. The power to govern the financial and operating policies of an entity.
Minority interest. The portion of the equity interest not owned by the parent.
3. PRESENTATION OF FINANCIAL STATEMENTS
Financial statements should be presented by the parent entity unless these four conditions are met:
(I)
A parent is the wholly owned subsidiary or is a partially owned subsidiary of another entity
and its other owners do not object to the parent not preparing consolidated financial state–
ments.
(2) The parent's equity or debt capital is not traded on a public market.
(3) The parent did not file nor is it filing its financial statements with a securities commission
or other regulator for the purpose of issuing shares .
(4) The ultimate or intermediate parent of the parent produces consolidated financial state–
ments that comply with International Financial Reporting Standards (IFRS) and that are for
public use.
4. CONSOLIDATED FINANCIAL STATEMENTS
4.1 All subsidiaries of the parent should be consolidated. Control is presumed to exist when the
parent owns either directly or indirectly more than half of the voting rights of the entity.
4.2 In exceptional circumstances, if it can be demonstrated that such ownership does not consti –
tute control, then the parent/subsidiary relationship does not exist. Even if less than half or even
half of the voting rights is acquired, it is still possible for control to exist where there is power
• Over more than half of the voting rights because of an agreement with other investors
• To govern the financial and operating policies of the entity by law or by agreement
• To appoint or remove the majority of the members of the board of directors and control of
the entity is by that board
• To cast the majority of votes at a meeting of the board of directors and control is exercised
by that board
Practical Insight
TPSA, a Polish entity, discloses in its financial statements that it has a 66% subsidiary; the re–
maining 34% is held by another party. TPSA had the right to nominate four out of six members
of the subsidiary's management board, although the minority shareholder had a blocking right
in various circumstances. The articles were changed so that members of the board were nomi–
nated equally by TPSA and the minority shareholder. The view taken by TPSA was that the