Pipara & Co LLP

Consolidated Financial Statements
Objective
  1. The objective of this Indian Accounting Standard (Ind AS) is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.
Meeting the objective
  1. To meet the objective in paragraph 1, this Ind AS:
    1. requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements;
    2. defines the principle of control, and establishes control as the basis for consolidation;
    3. sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee;
    4. sets out the accounting requirements for the preparation of consolidated financial statements; and
    5. defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity.
  2. This Ind AS does not deal with the accounting requirements for business combinations and their effect on consolidation, including goodwill arising on a business combination (see Ind AS 103, Business Combinations).

# This Ind AS was notified vide G.S.R. 111(E) dated 16th February, 2015 and was amended vide Notification No. G.S.R. 365(E) dated 30th March, 2016.

Scope
  1. An entity that is a parent shall present consolidated financial statements. This Ind AS applies to all entities, except as follows:
    1. A parent need not present consolidated financial statements if it meets all the following conditions:
      1. it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements;
      2. its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);
      3. it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and
      4. 1its ultimate or any intermediate parent produces financial statements that are available for public use and comply with Ind ASs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with this Ind AS.
    2. Omitted2
    3. Omitted3

4A 4This Ind AS does not apply to post employment benefit plans or other long-term employee benefit plans to which Ind AS 19, Employee Benefits, applies.

1 Substituted vide Notification No. G.S.R. 365(E) dated 30th March, 2016.

2 Refer Appendix 1. Omitted vide Notification No. G.S.R. 365(E) dated 30th March, 2016.

3 Refer Appendix 1. Omitted vide Notification No. G.S.R. 365(E) dated 30th March, 2016.

4 Inserted vide Notification No. G.S.R. 365(E) dated 30th March, 2016.

4B 5A parent that is an investment entity shall not present consolidated financial statements if it is required, in accordance with paragraph 31 of this Ind AS, to measure all of its subsidiaries at fair value through profit or loss.

Control
  • An investor, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.
  • An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
  • Thus, an investor controls an investee if and only if the investor has all the following:
  • power over the investee (see paragraphs 10–14);
  • exposure, or rights, to variable returns from its involvement with the investee (see paragraphs 15 and 16); and
  • the ability to use its power over the investee to affect the amount of the investor’s returns (see paragraphs 17 and 18).
  1. An investor shall consider all facts and circumstances when assessing whether it controls an investee. The investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in paragraph 7 (see paragraphs B80–B85).
Two or more investors collectively control an investee when they must act together to direct the relevant activities. In such cases, because no investor can direct the activities without the co-operation of the others, no investor individually controls the investee. Each investor would account for its interest in the investee in accordance with the relevant Ind ASs, such as Ind AS 111, Joint Arrangements, Ind AS 28, Investments in Associates and Joint Ventures, or Ind AS 109, Financial Instruments.
Power
  1. An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, ie the activities that significantly affect the investee’s returns.
  2. Power arises from rights. Sometimes assessing power is straightforward, such as when power over an investee is obtained directly and solely from the voting rights granted by equity instruments such as shares, and can be assessed by considering the voting rights from those shareholdings. In other cases, the assessment will be more complex and require more than one factor to be considered, for example when power results from one or more contractual arrangements.
  3. An investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor has power, but such evidence is not, in itself, conclusive in determining whether the investor has power over an investee.
  4. If two or more investors each have existing rights that give them the unilateral ability to direct different relevant activities, the investor that has the current ability to direct the activities that most significantly affect the returns of the investee has power over the investee.

An investor can have power over an investee even if other entities have existing rights that give them the current ability to participate in the direction of the relevant activities, for example when another entity has significant influence. However, an investor that holds only protective rights does not have power over an investee (see paragraphs B26–B28), and consequently does not control the investee.

Returns
  1. An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative.
  1. Although only one investor can control an investee, more than one party can share in the returns of an investee. For example, holders of non-controlling interests can share in the profits or distributions of an investee.
Link between power and returns
  1. An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor’s returns from its involvement with the investee.
  2. Thus, an investor with decision-making rights shall determine whether it is a principal or an agent. An investor that is an agent in accordance with paragraphs B58–B72 does not control an investee when it exercises decision-making rights delegated to it.
Accounting requirements
  • A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.
  1. Consolidation of an investee shall begin from the date the investor obtains control of the investee and cease when the investor loses control of the investee.
  2. Paragraphs B86–B93 set out guidance for the preparation of consolidated financial statements.
Non-controlling interests
  1. A parent shall present non-controlling interests in the consolidated balance sheet within equity, separately from the equity of the owners of the parent.
  2. Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (ie transactions with owners in their capacity as owners).
  1. Paragraphs B94–B96 set out guidance for the accounting for non- controlling interests in consolidated financial statements.

Loss of control

  1. If a parent loses control of a subsidiary, the parent:
  1. derecognises the assets and liabilities of the former subsidiary from the consolidated balance sheet.
  2. recognises any investment retained in the former subsidiary at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance with relevant Ind ASs. That fair value shall be regarded as the fair value on initial recognition of a financial asset in accordance with Ind AS 109 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture.
  3. recognises the gain or loss associated with the loss of control attributable to the former controlling interest.
  1. Paragraphs B97–B99 set out guidance for the accounting for the loss of control.
Determining whether an entity is an investment entity
  • A parent shall determine whether it is an investment entity. An investment entity is an entity that:
  • obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
  • commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
  • measures and evaluates the performance of substantially all of its investments on a fair value basis.
Paragraphs B85A–B85M provide related application guidance.
  1. In assessing whether it meets the definition described in paragraph 27, an entity shall consider whether it has the following typical characteristics of an investment entity:
  1. it has more than one investment (see paragraphs B85O– B85P);
  2. it has more than one investor (see paragraphs B85Q–B85S);
  3. it has investors that are not related parties of the entity (see paragraphs B85T–B85U); and
  4. it has ownership interests in the form of equity or similar interests (see paragraphs B85V–B85W).
The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified as an investment entity. An investment entity that does not have all of these typical characteristics provides additional disclosure required by paragraph 9A of Ind AS 112, Disclosure of Interests in Other Entities.
  1. If facts and circumstances indicate that there are changes to one or more of the three elements that make up the definition of an investment entity, as described in paragraph 27, or the typical characteristics of an investment entity, as described in paragraph 28, a parent shall reassess whether it is an investment entity.
  2. A parent that either ceases to be an investment entity or becomes an investment entity shall account for the change in its status prospectively from the date at which the change in status occurred (see paragraphs B100–B101).
Investment entities: exception to consolidation
  • Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries or apply Ind AS 103 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with Ind AS 109.
  1. 6Notwithstanding the requirement in paragraph 31, if an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing services that relate to the investment entity’s investment activities (see paragraphs B85C–B85E), it shall consolidate that subsidiary in accordance with
6 Substituted vide Notification No. G.S.R. 365(E) dated 30th March, 2016. paragraphs 19–26 of this Ind AS and apply the requirements of Ind AS 103 to the acquisition of any such subsidiary.
  1. A parent of an investment entity shall consolidate all entities that it controls, including those controlled through an investment entity subsidiary, unless the parent itself is an investment entity.
Appendix A

Defined terms

consolidated financial statements

control of an investee

decision maker

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

An entity with decision-making rights that is either a principal or an agent for other parties.

group A parent and its subsidiaries.

investment entity

non- controlling interest

An entity that:

  1. obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
  2. commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
  3. measures and evaluates the performance of substantially all of its investments on a fair value basis.

Equity in a subsidiary not attributable, directly or indirectly, to a parent.

parent An entity that controls one or more entities.

power Existing rights that give the current ability to direct the relevant activities.

protective rights

Rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate.

relevant activities

For the purpose of this Ind AS, relevant activities are activities of the investee that significantly affect the investee’s returns.

removal rights Rights to deprive the decision maker of its decision-making authority.

subsidiary An entity that is controlled by another entity.

The following terms are defined in Ind AS 111, Ind AS 112, Disclosure of Interests in Other Entities, Ind AS 28 or Ind AS 24, Related Party Disclosures, and are used in this Ind AS with the meanings specified in those Ind ASs:

  • associate
  • interest in another entity
  • joint venture
  • key management personnel
  • related party
  • significant influence.
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