GROUP FINANCIAL

REPORTING
Introduction to Groups

Introduction to Groups

THE BIG PICTURE, WHAT IS A GROUP?

The big picture, what is a group?

Introduction to Groups

SOME BASIC DEFINITIONS FOR YOU TO

READ BEFORE PROCEEDING
 Definitions relating to control
Investor / Holding Company / Parent - the Company that acquires a
significant share in the Investee, i.e. invests in another entity.

Control - A parent has control when it owns more than 50% of the voting
rights in the investee. Per IAS 27, control is the power to govern the financial
and operating policies of an entity so as to obtain the benefits from those
activities. IFRS 10 further elaborates an investor controls an investee when it
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.

Definitions relating to control

Subsidiary - Investee who is CONTROLLED by the investor. Per IAS 27, a
subsidiary is an entity, including an unincorporated entity such as a
partnership, that is controlled by the Parent.

Non-controlling interest - the other shareholders of a subsidiary if the parent

does not own 100%. IFRS 10 defines non-controlling interests as the equity in
a subsidiary not attributable, directly or indirectly, to a parent.

Consolidate - to combine ALL of assets, liabilities and other financial items of

two or more entities into one. In the context of financial accounting, the
term consolidate often refers to the consolidated financial statements, where
all subsidiaries report under the umbrella of a parent company. Per IFRS 10,
consolidated financial statements are defined as the financial statements of a
group in which the assets, liabilities, income, expenses and cash flows of the
parent and its subsidiaries are presented as those of a single economic entity.
 Definitions relating to significant
influence
Significant influence - when the parent is able to have a say in what goes on
in the investee but does not control it. Per IAS 28, significant influence is the
power to participate in the financial and operating policy decisions of the
investee but is not control or joint control over those policies.

Associate - investee who is SIGNIFICANTLY INFLUENCED by the investor. Per

IAS 28, a subsidiary is an entity, including an unincorporated entity such as a
partnership, over which the investor has significant influence and is neither a
subsidiary or a joint control.

Equity accounting - to account for only the parent's share of its investment in
an associate in a single line in each of the statements (i.e. SFP, SPL etc.) in the
consolidated financial statements. Per IAS 28, it is a method of accounting
whereby the initial investment is initially recognised at cost and adjusted
thereafter for the post-acquisition change in the investor's share of net assets
of the investee. The profit or loss of the investor includes the investor's share
of profits or losses from the investee.

Definitions relating to joint control

Joint control - when 2 or more investors unanimously agree to jointly control
another entity.

Joint venture - Investee that is JOINTLY CONTROLLED by the investor. IFRS 11

defines a joint venture as a joint arrangement, where the parties that have
joint control have rights to the net assets of the of the arrangement.

Joint operation - Investee that is JOINTLY CONTROLLED by the investor. IFRS

11 defines a joint operation as a joint arrangement, whereby the parties that
have joint control of the operation have rights to the assets and obligation for
the liabilities, relating to the operation.

Proportionate consolidation - To account for the parent's share of its

investment in a joint operation on a line-by-line basis in the consolidated
financial statements.
Introduction to Groups

CONTROL  SUBSIDIARY 
CONSOLIDATION

Control Subsidiary Consolidation

 Introduction to Groups

SIGNIFICANT INFLUENCE  ASSOCIATE

 EQUITY ACCOUNTING

Significant influence  Associate Equity

accounting
Introduction to Groups

JOINT CONTROL  JOINT

ARRANGEMENT 
JOINT VENTURE (EQUITY ACCOUNTING) /
JOINT OPERATION (PROPORTIONATE)

Joint control Joint arrangement 

Joint venture (Equity accounting) /
Joint operation (Proportionate)
 Introduction to Groups

NO CONTROL OR SIGNIFICANT
INFLUENCE FINANCIAL ASSET  NOT
IN THIS COURSE

No control or significant influence  Financial asset

NOT in this course
 Introduction to Groups

SUITE OF STANDARDS COVERED IN THIS

COURSE

Suite of standards
Control = Significant influence Joint control = Joint control =
Subsidiary = Associate Joint venture Joint operation

H H H H

S A
Consolidate
SFP -> 100% Line by line
SPL -> 100% Line by line
OCI -> 100% Line by line
JV
Equity accounting
SFP -> % holding - One line
SPL -> % holding - One line
OCI -> % holding - One line
JO
Proportionate consolidation
SFP -> % holding - line by line
SPL -> % holding - line by line
OCI -> % holding - line by line
 Introduction to Groups

READ THE QUESTION AND

CONSOLIDATION STEPS 1 - 3

Step 1

Step 2
Step 3

Introduction to Groups

THE PROCESS OF ADDING H LTD + S LTD –

CONSOLIDATION STEP 4
Write out the format of SPL&OCI
Add H + S

Write out the format of SFP

Add H + S
Introduction to Groups

INTERCOMPANY TRANSACTIONS AND

BALANCES– CONSOLIDATION STEP 5

Working 1 – Intercompany
eliminations
 Introduction to Groups

PRO-FORMA CONSOLIDATION JOURNALS

– CONSOLIDATION STEP 6

Working 2 – Pro-forma consolidation

At acquisition
 Working 2 – Pro-forma consolidation
Since acquisition to BOY

Working 2 – Pro-forma consolidation

Current year
Introduction to Groups

POSTING JOURNALS TO THE FINANCIAL

STATEMENTS – CONSOLIDATION STEP 7