What remains in IAS 27 after the introduction of IFRS 10 is the accounting treatment of its separate financial statements for branches, jointly managed companies and associates.
IFRS 10 establishes principles for presenting and preparing consolidated financial statements when an entity controls one or more other entities. Consolidated financial statements are financial statements which present a parent and his subsidiaries assets, liabilities, equity, income, expenses and cash flows as those of a single economic entity.
A parent company prepares consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.
- Combine the parent company’s assets, liabilities, equities, profits, expenditures and cash flows with those of its subsidiaries.
- Adjust (eliminate) the carrying volume of the investment of the parent company in each subsidiary and the equity part of the parent in each subsidiary.
- Eliminate in full intra-group assets and liabilities, equity, revenue, expenditures and cash flows related to transactions between group entities (profit or losses arising from intra-group transactions recognized in assets such as inventories and fixed assets are excluded in their entirety).
The consolidation exemption extends only to the investment company itself. Consequently, a parent of an investment entity is forced to merge all entities it controls, including those managed by a subsidiary of an investment entity, unless the parent is an investment entity itself.