Unconsolidated subsidiaries in practice

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pub_acco
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Unconsolidated subsidiaries in practice

Post by pub_acco »

All the subsidiaries must be consolidated unless IFRS 10's exemption applies, but I believe it's common in practice to skip fully consolidating some negligible subsidiaries. I'm interested in how you treat such ignored subsidiaries in practice. The approaches I've seen in practice are:

- State the investment at cost or at FVTPL
- Apply the equity method
- Consolidate sub's financial statements at a different reporting date (to allow 3 to 6 months for preparation)

Have you ever seen any other "creative" approach? In particular, I'm interested in a piecemeal or cherry-picking approach (e.g. consolidating PL or BS only, skipping some elimination processes, etc.).
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Marek Muc
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Re: Unconsolidated subsidiaries in practice

Post by Marek Muc »

I sometimes see immaterial subsidiaries carried as an investment at cost, with dividends recognised in P&L. Basically the amounts recognised in parent's books are carried into consolidated financial statements.

With consolidation at different reporting dates you may come across some issues with eliminating intragroup transactions, but generally this is OK.

I haven't seen equity method as a simplified substitute for consolidation and personally I wouldn't go this way. If it's immaterial, you can just keep the investment at cost. If you see a reason for consolidating the results in some way, it's a strong indicator that the subsidiary is not immaterial.

In your particular situation, what is the reason you're looking for alternative solution? Issues with data quality?
pub_acco
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Re: Unconsolidated subsidiaries in practice

Post by pub_acco »

You're right! The subsidiaries in mind are no longer immaterial from a purely accounting perspective, but it's often a big deal for small entities to prepare FS on time. We consolidates 300+ subsidiaries in two weeks and completes the audit of short-note FS in one month. It's difficult or just costly to have such entities keep up with this schedule.

Fortunately, only some accounts (e.g. sales, borrowings) of the subsidiaries are reaching the materiality threshold. I am looking for a creative way to substantially consolidate such subsidiaries while avoiding the burden for full FS preparation.
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Marek Muc
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Re: Unconsolidated subsidiaries in practice

Post by Marek Muc »

You don't need those subsidiaries to prepare and authorise complete financial statements along with explanatory notes. Prepare some kind of consolidation packages for them consisting mostly of primary financial statements, plus some input to consolidated explanatory notes as you consider necessary. They will apply group materiality levels for those data, so they can focus on the important stuff only.

Any differences between consolidation packages and statutory financial statements of these subsidiaries can be recognised in consolidated financial statements next year.

It's quite common to publish consolidated financial statements with some subsidiaries still in the process of authorisation of their statutory accounts.
pub_acco
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Re: Unconsolidated subsidiaries in practice

Post by pub_acco »

Yeah, I'm currently taking that approach for several subsidiaries, and perhaps I need to do so too for the other subsidiaries.
JRSB
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Re: Unconsolidated subsidiaries in practice

Post by JRSB »

Yes I agree that in moderate large groups there is not a process to finalise all subs first. quite the opposite - the group being the priority and the subs as a purely administrative burden to worry about later. The subs can be audited at trial balance level. Another option in practice might be to ignore all aspects of the small subs entirely where immaterial, or for the auditor to designate a sub-consol as a significant component (which it can under ISAs) and then just test material issues in that sub consolidation.
Student of IFRS.
pub_acco
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Re: Unconsolidated subsidiaries in practice

Post by pub_acco »

Thank you, JRSB. It's a cool approach to find a way out based on ISAs. Now I'm convinced it's best for me to talk to my auditors to agree on an acceptable approach.
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