Consolidating the consolidation standards under IFRS
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Consolidating the consolidation standards under IFRS

Consolidation, equity method of accounting, and the assessment of when an entity has control, joint control, or significant influence has been and continues to be one of the most challenging areas in financial reporting under IFRS. IFRS 10, IFRS 11, and IAS 28 are three standards, each providing unique accounting and reporting principles that function together in order to provide clarity over these issues. GAAP Dynamics has issued a collection of three courses to shed light over key provisions and how the standards interact with each other to provide comprehensive guidance on accounting and reporting for an entity’s investments.

When an entity holds an interest in another entity, consideration must be given as to whether the arrangement requires consolidation accounting, equity method, or some other financial instrument accounting. To make this determination, the scopes of IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, or IAS 28, Investments in Associates and Joint Ventures, apply. Only when these standards are not relevant is the interest accounted for as a financial instrument under IFRS 9.

Our eLearning collection, Consolidated Financial Statements and other Control Considerations, consists of three separate eLearning courses, totaling 2.5 hours of CPE credit. Each course focuses on a different aspect of these standards to enable learners to gain a fundamental understanding of the core principles of control, joint control, and significant influence and the related accounting models that apply to each of these scenarios.

Consolidation applies when an entity has “control” over another entity. A controlling financial interest is defined by IFRS 10, which includes a principles-based approach that in some instance may require significant judgment.

The first course in our eLearning collection, Consolidation Analysis under IFRS 10, is a one hour course that takes learners through the definition of control, highlighting how the definition is applied to various arrangements involving interests in other entities.

Control requires an entity to possess both the “power” over relevant decisions of the investee, as well as “exposure to variability of returns”. Importantly, there must also be “linkage” between this power and exposure to variability, meaning the reporting entity is acting not as an agent, but as a principal and for its own benefit.

To apply this basic definition, a complete understanding of the investee must be obtained, including its relevant activities. The assessment of control will vary depending on whether voting rights or rights other than voting rights are most relevant to the entity.

Our eLearning course goes through a methodical, step-by-step approach, to analyze and determine if consolidation exists.

Piggy-backing off this first course, the second course in the collection, Consolidation Accounting under IFRS 10, is a thirty-minute eLearning course that takes learners through the requirements of when consolidated financial statements are required and how to perform a consolidation.  This includes the treatment of non-controlling interests, intercompany transactions, and other issues that arise when consolidating entities and presenting the assets, liabilities, equity, income, expenses, and cash flows of a parent and its subsidiaries as those of a single economic entity.

Finally, the third course in the collection, Accounting for Investments in Associates (IAS 28) and Joint Arrangements (IFRS 11), covers instances where an entity holds an interest in another entity, that results in less than a controlling interest. In such cases,  it must be determined whether joint control or significant influence exists. Joint ventures and investments of significant influence must apply the equity method of accounting whereas joint operations, taking place outside of a separate legal entity, may be required to apply a different basis of accounting.

This final course covers both the assessment of joint control and significant influence, including the challenges and judgment that may be required to make this assessment, as well as the challenges of applying the equity method of accounting, including basis adjustments and other complexities often not covered in basic accounting training but yet very real in practice.

While our course collection will not make you an expert in applying these complex standards, it is an efficient way to begin your journey to explore the challenges surrounding consolidation and the equity method of accounting in greater depth in subsequent training, or simply provide you with a baseline knowledge of the key aspects of the standards and enable you to understand the core principles. We want to help you start this journey of learning!

About GAAP Dynamics  

We’re a DIFFERENT type of accounting training firm. We don’t think of training as a “tick the box” exercise, but rather an opportunity to empower your people to help them make the right decisions at the right time. Whether it’s U.S. GAAP training, IFRS training, or audit training, we’ve helped thousands of professionals since 2001. Our clients include some of the largest accounting firms and companies in the world. As lifelong learners, we believe training is important. As CPAs, we believe great training is vital to doing your job well and maintaining the public trust. We want to help you understand complex accounting matters and we believe you deserve the best training in the world, regardless of whether you work for a large, multinational company or a small, regional accounting firm. We passionately create high-quality training that we would want to take. This means it is accurate, relevant, engaging, visually appealing, and fun. That’s our brand promise. Want to learn more about how GAAP Dynamics can help you? Let’s talk!


This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.

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