Investment in associate - Conso vs separate financials

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jrn816
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Investment in associate - Conso vs separate financials

Post by jrn816 »

Company A just recently bought 21% of shares of Company B. Company A only prepares stand-alone IFRS financials before. Acquisition of Company B is currently presented as "Investment in Associate" in Company A's draft stand-alone financials (no consolidated financials prepared - yet).

I'm really confused. Sorry about this - I might have been overthinking this so would appreciate getting some inputs on this.

Questions:
    In its financial statements now, should there be a consolidated and a separate financials?
      Is it correct that at separate/stand-alone financials, the line item "Investment in Associate" will show? What about the consolidated financials - this will still show, i.e., no elimination?
        Share of net profit of Company B is also presented as a separate line item in the P&L - but would this amount only be presented in consolidated but not in separate/stand-alone?
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        Marek Muc
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        Re: Investment in associate - Conso vs separate financials

        Post by Marek Muc »

        Hi, you won't prepare consolidated financial statements if you don't have any subsidiaries. In separate financial statements, you can present the investment in associate at cost, under IFRS 9, or using the equity method. It's an accounting policy choice, i.e. you can decide freely.

        In consolidated financial statements, you would have to apply the equity method.

        Have a read:
        https://ifrscommunity.com/knowledge-bas ... tatements/
        jrn816
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        Re: Investment in associate - Conso vs separate financials

        Post by jrn816 »

        That's what I am thinking - since conso = subsidiaries, but my boss is saying by equity accounting for the share in P&L, we technically are "consolidating" - which I don't understand.

        Basically, boss says: separate FS - investment in associate at cost, no share in P&L; conso - investment in assoc at cost + share in P&L

        I can't find any technical reference that says this is the case so I am confused.
        JRSB
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        Re: Investment in associate - Conso vs separate financials

        Post by JRSB »

        equity accounting isn't consolidating. If it was consolidating you'd include all revenues etc line by line.

        Maybe your boss is suggesting you control the 'associate' (ie even if you have 20-50% equity, in practice you control it?)
        jrn816
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        Re: Investment in associate - Conso vs separate financials

        Post by jrn816 »

        No - it was settled it was just significant influence. I have to agree with your "equity accounting isn't consolidating" - I just don't follow the boss' logic.
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        Marek Muc
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        Re: Investment in associate - Conso vs separate financials

        Post by Marek Muc »

        jrn816 wrote: 05 May 2022, 19:23 I can't find any technical reference that says this is the case so I am confused.
        IAS 27.9-10
        jrn816
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        Re: Investment in associate - Conso vs separate financials

        Post by jrn816 »

        Thanks Marek - I meant the reference that would support the need to prepare consolidated financials for investments in associates if only significant influence is exercised and not control. :)
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        Re: Investment in associate - Conso vs separate financials

        Post by Marek Muc »

        IFRS 10.2(a) should clarify that
        jrn816
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        Re: Investment in associate - Conso vs separate financials

        Post by jrn816 »

        "2. To meet the objective in paragraph 1, this IFRS:
        (a) requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements;"


        But in my case, there's none (just significant influence) - so I really don't get the point of us preparing consolidated financials :( anyway I will just prepare it as instructed...
        JRSB
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        Re: Investment in associate - Conso vs separate financials

        Post by JRSB »

        show your boss that extract - assuming he understands the difference between significant influence and control, but actually it sounds like he doesn't understand equity accounting. bit of an accounting lesson for him perhaps... ( I wonder what else he has instructed you to do, accounting wise.. :o )
        jrn816
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        Re: Investment in associate - Conso vs separate financials

        Post by jrn816 »

        so far, nothing out of the usual/regular transactions :lol: this is one of the few times we've toed the line outside of the usual/regular transactions
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        Re: Investment in associate - Conso vs separate financials

        Post by Marek Muc »

        The possibility to use equity method in separate financial statements is a relatively recent amendment to IAS 27 (issued in 2014) so maybe your boss wasn't aware of it
        Leo
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        Re: Investment in associate - Conso vs separate financials

        Post by Leo »

        Sincerely for me, I've never used IAS27 in my work or maybe yes without noticing. Either is a group under regulatory threshold to consolidate, for which I use CRC 99-02 (French GAAP for consolidated financial statements) or a group that exceed the regulatory threshold, in which case I often use IFRS (depending on whether it's listed, or required by investors etc.)

        So, when a group applies CRC 99-02 or IFRS, each entity within, applies and comply to the same standard as well. They prepare their IFRS package and upload it into the group consolidation tool, that's all. They don't produce a financial report with all the IFRS requirements in terms of disclosure. Does this mean they apply IAS27 as well ?

        These entities, at the same time, prepare their individual financial statements in French GAAP and produce a financial report with all disclosures requirements under French GAAP. Because in France, there is no obligation for a single entity to produce financial statements under IFRS, hence, I've never seen a single entity using IAS27 and produce an individual financial report under IFRS, because they use French GAAP (for tax purposes).

        I understand here that IFRS10 is not a prerequisite to IAS27, so entities or the group it belongs, who've never produced consolidated financial statements can also apply IAS27 and present a separate financial statements.

        Besides the example posted by jrn816, which situation need the use of IAS27, guys ?
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        Marek Muc
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        Re: Investment in associate - Conso vs separate financials

        Post by Marek Muc »

        Most jurisdictions simply require each legal entity to produce separate financial statements. And if an entity is part of an IFRS group, it is allowed or required (depending on the jurisdiction) to use IFRS for those separate financial statements. If so, IAS 27 applies.
        Leo
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        Re: Investment in associate - Conso vs separate financials

        Post by Leo »

        Thanks, that's clear.
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