Companies acts consolidation exemption and IFRS 10 exemptions

[Leo]

in the UK, a parent holding company, can benefit from conso if certain criteria are satisfied (as per section 401, 402 and 405). In parallel, a company can benefit from applying IFRS 10 if criteria are met (as per para 27-33).

What would be the connection between a local law and IFRS 10? What happens if a company is exemption to prepare consolidated accounts under the Companies acts but not satisfying IFRS 10 and vice versa? Does the company still needs to prepare conso if either one of the framework is not met? If not, which one would have priority?

Also, under IFRS 10 exemptions, a company is exempt from preparing conso but needs to prepare individual accounts with subsidiaries held at fair value under IFRS 9.. However, if a company satisfies the conso exemption under the Companies Acts, does it mean that the company can prepare individual accounts by applying IAS 27, which allows the subs to be held at cost?

Not limiting to UK, I would believe that each country has its own "Companies Acts" that prescribes conso or not conso, in such a case, would this automatically qualifies the company to apply IAS 27 with investment in subs held at cost instead of at fair value under IFRS 9?

Many thanks

[Marek Muc]

I've moved this topic to 'General accounting and financial reporting discussion'. Please don't post local law questions under 'IFRS-related topics', thanks!

[JRSB]

Where does CA06 say individual accounts have to show subsidiaries at fair value?

[Leo]

No where, that's my question.

[Marek Muc]

I'd assume that local law aligns with IFRS. The investment entity exception under IFRS 10 is mandatory so there'd be issues if it conflicts with local regulations. In such cases, entities would follow local law and be effectively using a local version of IFRS, such as IFRS 'as adopted by [a country]'.

Leo, have you noticed any specific inconsistencies between IFRS and the UK's Companies Act 2006?

[Leo]

Not particularly, the reason I'm asking this is I haven't found in the CA 2006 something obliging an entity exempt from consolidation (an investment entity for example) to hold investment at fair value. That's why I was wondering if someone has got any clue that I may have overlooked.

[Leo]

Thanks again for your reply Marek!

[Marek Muc]

I think you are simply looking in the wrong place. UK-based entities use IFRS or UK GAAP so I don't think you should expect CA 2006 to have overlapping requirements with these accounting standards.

[Leo]

I may have, thanks. So based on CA 06, a company exempt from producing conso can prepare separate accounts, if it's under UK adopted IFRS, then the company can prepare accounts under IAS 27. In such a case, it can apply the cost method to account for the subs.

However, if the entity is an investment entity than, under IFRS 10 exemption, it can prepare accounts under IAS 27 but account for the subs at fair value.

So, in this situation, which one takes precedence?

[Marek Muc]

Once again, what inconsistencies have you identified between IFRS and CA06?

[Leo]

I haven't found anything regarding this under CA06 JRSB, could you please have a look as you are the expert in the UK. Thanks

[JRSB]

Sorry I don't follow the issue exactly.

[Leo]

The issue is under CA06, there is the section that prescribes exemption for companies to do conso accounts. In such a case, they can prepare individual/statutory accounts. I cannot find anything on accounting if it's an investment entity.

In parallel, there is this IFRS 10 para 27-33 which prescribes an investment entity to be exempt from conso accounts but need to do IAS 27 with holding the investment in subs at fair value.

So, if an entity satisfies the CA 06, and is an investment company, can this company still do individual accounts applying IAS 27 para 10, by holding the subs at cost. Or the application of IFRS 10 para 27-33 is mandatory?

[JRSB]

as far as I'm aware CA06 only talks about exemption from consolidation in terms of group size, ie you are exempt if you are a small group, as defined. I'd be surprised if there is much of a cross section between 'small' groups and those who apply IFRS and are investment companies.
I guess if there's a niche cross section where IFRS 10 is not followed then you'd need to state that in the accounts.

[Leo]

Make sense, same in France, the CA only gives guidance on exemptions in terms of group size.

[Leo]

I think generally, CA of your jurisdiction tells you who needs to prepare group accounts and IFRS 10 what they contain.

On that basis, if a company is exempt of conso by CA, then no further questions, this company do not need to do conso, and can apply ias 27 to its full extent.
if a company is not exempt of conso by CA, then, if the company is an investment entity, then the company do not need to do conso, based on IFRS 19 para 27-32, but would need to prepare IAS 27 with sub held at fair value.