THE GROUP: CHAPTER 1
TERMINOLOGY
• Parent: This company owns/has a majority shareholding in other companies
• Subsidiary: This company is owned/has a majority of its shares owned by another company (parent
company)
INTRODUCTION
• A company is a separate legal entity constituted in accordance with the requirements of the
Companies Act.
• The Companies Act requires that financial reporting standards adopted by a company must be
consistent with IFRS.
• This means that where a company (parent) has an interest in a subsidiary then the parent will have
to prepare:
• Separate financial statements AND
• Group financial statements
SCOPE
• An entity shall present consolidated financial statements unless it meets ALL of the following
conditions:
• It is a wholly owned or partly owned subsidiary of another entity and all its other owners have
been informed about and 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 in the process of filing, its financial statements with a securities commission or
other regulatory organization for the purpose of issuing any class of instruments in a public market
• It's ultimate or any intermediate parent produces consolidated financial statements that are
available for public use and comply with IFRSs.
CONSOLIDATED FINANCIAL STATEMENTS: CONTROL
• The main focus of this accounting standard is “control”
• An investor “controls” an investee when the investor is exposed or has the rights to, variable
returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee.
, CONTROL
• An investor considers all the relevant facts and circumstances when it assesses whether it controls
an investee and on an ongoing basis reassesses the situation.
• An investor controls an investee if and only if an investor has ALL of the following:
• Power over the investee
• Exposure, or rights to, variable returns from its involvement with the investee, AND
• The ability to use its power over the investee to affect the amount of the investor’s returns.
POWER
• This is when an investor has existing rights that give it the current ability to direct the relevant
activities (that is the activities that significantly affect the investee’s returns).
• Power arises from rights which would normally be voting rights, however, this could be more
complex and may require more than one factor to be considered.
• An investor can have power over an investee even if other entities have existing rights.
• When assessing whether an entity has power over an investee only substantive rights are
considered. Protective rights are not taken into account.
SUBSTANTIVE RIGHTS
• For a right to be substantive it needs to be:
• Exercisable when decisions about the direction of the relevant activities need to be made
• And The holder must have the practical ability to exercise the rights.
PROTECTIVE RIGHTS
• Are rights designed to protect the interest of the party holding those rights without giving the
party power over the entity to which those rights relate?
TERMINOLOGY
• Parent: This company owns/has a majority shareholding in other companies
• Subsidiary: This company is owned/has a majority of its shares owned by another company (parent
company)
INTRODUCTION
• A company is a separate legal entity constituted in accordance with the requirements of the
Companies Act.
• The Companies Act requires that financial reporting standards adopted by a company must be
consistent with IFRS.
• This means that where a company (parent) has an interest in a subsidiary then the parent will have
to prepare:
• Separate financial statements AND
• Group financial statements
SCOPE
• An entity shall present consolidated financial statements unless it meets ALL of the following
conditions:
• It is a wholly owned or partly owned subsidiary of another entity and all its other owners have
been informed about and 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 in the process of filing, its financial statements with a securities commission or
other regulatory organization for the purpose of issuing any class of instruments in a public market
• It's ultimate or any intermediate parent produces consolidated financial statements that are
available for public use and comply with IFRSs.
CONSOLIDATED FINANCIAL STATEMENTS: CONTROL
• The main focus of this accounting standard is “control”
• An investor “controls” an investee when the investor is exposed or has the rights to, variable
returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee.
, CONTROL
• An investor considers all the relevant facts and circumstances when it assesses whether it controls
an investee and on an ongoing basis reassesses the situation.
• An investor controls an investee if and only if an investor has ALL of the following:
• Power over the investee
• Exposure, or rights to, variable returns from its involvement with the investee, AND
• The ability to use its power over the investee to affect the amount of the investor’s returns.
POWER
• This is when an investor has existing rights that give it the current ability to direct the relevant
activities (that is the activities that significantly affect the investee’s returns).
• Power arises from rights which would normally be voting rights, however, this could be more
complex and may require more than one factor to be considered.
• An investor can have power over an investee even if other entities have existing rights.
• When assessing whether an entity has power over an investee only substantive rights are
considered. Protective rights are not taken into account.
SUBSTANTIVE RIGHTS
• For a right to be substantive it needs to be:
• Exercisable when decisions about the direction of the relevant activities need to be made
• And The holder must have the practical ability to exercise the rights.
PROTECTIVE RIGHTS
• Are rights designed to protect the interest of the party holding those rights without giving the
party power over the entity to which those rights relate?
