Consolidated financial statements and the control concept
Ten discussion areas for investment managers
The change to the definition of control introduced in IFRS 10, Consolidated Financial Statements [“IFRS 10”] is expected to have a significant effect on investment managers applying IFRS.
Managers may be required to consolidate certain investees for the first time or more entities may fall within the existing consolidation scope. This will not only have an impact on the financial reporting process but it will also affect how users of the financial statements such as regulators, finance providers and shareholders will understand and interpret these changes in the financial statements.
Investment managers will have to apply the more comprehensive scope and guidance in IFRS 10 when determining whether they control the entities they are involved with and consequently, whether they will need to consolidate those entities in their own financial statements.
IFRS 10 supersedes the consolidation requirements in IAS 27, Consolidated and Separate Financial Statements [“IAS 27”] and SIC-12, Consolidation—Special Purpose Entities [“SIC-12”] (together, the ‘current Standards’) and is effective for annual periods beginning on or after 1 January 2013, with earlier application being permitted. For companies that prepare their financial statements in accordance with IFRSs as adopted by the European Union, the mandatory effective date of IFRS 10 is 1 January 2014, although earlier application is permitted.