The "AASB10 Consolidated Financial Statement"
The "AASB10 Consolidated Financial Statement" was created by the "Australian Accounting Board" to make it easier to comply with the "IFRIS10 Consolidated Financial Statement" created by the "International Accounting Standards Board" (Australian Accounting Standards Board, 2014). This assumes that using AASB10 implicitly indicates that a corporation has already followed IFRIS10, and hence the international accounting rules (Australian Accounting Standards Board, 2014).
"AASB10 Consolidated Financial Statements" Prescription
AASB10 compliance necessitates the following: If an entity has control over one or more other entities to present a consolidated financial statement. Consolidation can only be determined if an entity proves to be a parent by exercising control over the other entities. This can only be proven through having power enough to control or influence the return on investment.
A parent shall apply uniform accounting policies for similar transactions and events that compare (Australian Accounting Standards Board, 2014). It should also show proof that it measures the investments on the basis of a fair value.
A parent business shall prove if it is an investment (Australian Accounting Standards Board, 2014). This it shall do by providing proof that it draws its capital from more than one investor for the sole purpose of investment (Australian Accounting Standards Board, 2014).
An investment is not expected to consolidate its subsidiaries if it has gained control over them. Instead, it shall measure the subsidiary as a fair value through the calculation of profits and loss.
Issues around AASB 10 that Influence Present Consolidation Policies
AASB 10 defines power among business combinations and investments quite differently. Power, in the case of this policy, is defined by the magnitude of risk and benefits that an investor stands to bear. It also looks at the amount of control an investor, directly or otherwise, has on the business of interest. It also looks at voting rights and potential voting rights, where there is a need, it looks into other contractual arrangements.
Power and control being the chief determinant of consolidation, investments do not necessarily have to consolidate. However, AASB 10 clarifies that when there is substantive power to influence important decisions in the entity, there may be a need to consolidate. The business does not have to consolidate if it gains control after it joins the subsidiary. In that case, the statement will apply to the subsidiary as a fair value investment. This shows goodwill for business combinations.
AASB 10 reduces the disclosure requirement for Tier 2 organizations. This significantly reduces the amount of information that is put out for public use (Deloitte, 2015). However, it still allows the public to learn about information that may be beneficial to them.
AASB 10 also provides relief from the consolidation of financial statements on the grounds that the parent company fully owns or significantly owns an entity and all its owners, even those who do not vote, have been informed and they do not object to not consolidating their financial statements (Federal Register of Legislation, 2012). If the equity and debt instruments are not traded in public or if the company is not listed in domestic or foreign stock markets (Federal Register of Legislation, 2012). Lastly, if its parent, either ultimate or intermediate, produces a Consolidated Financial Statement that complies with IFRS for public consumption (Deloitte, 2005). This makes consolidation optional for the entities that meet this criteria. Therefore, not all consolidations have to present their consolidated statements for public use.
AASB 10 and Intergroup Transactions and Tax Consolidation
All entities within a consolidation need to have uniform transaction policies to ensure easy reporting for financial reporting (Australian Accounting Standards Board, 2017). This is because they are required by AASB10 to provide a single financial statement under the parent entity. Another reason why transaction policies have to be uniform is for the reasons of taxation (Deloitte, 2005). The transactions in each entity under a consolidation are largely taxable, but the burden has to be shouldered by the parent entity. Consolidations need to make adjustments to tax expenses when single annual consolidated tax returns are expected from the entities.
References
Australian Accounting Standards Board. (2014). AASB 10. Australian Accounting Standards Board.
Australian Accounting Standards Board. (2017). Reduced Disclosure Requirements for Tier 2 Entities. Australian Accounting Standards Board.
Deloitte. (2005). Accounting for tax consolidation under A-IFRS. Deloitte.
Deloitte. (2015). Model financial statements Reduced disclosure Requirements Step Ahead. Deloitte.
Federal Register of Legislation. (2012). AASB 2012-11 – Amendments to Australian Accounting Standards – Reduced Disclosure Requirements and Other Amendments – December 2012. Retrieved from Federal Register of Legislation: https://www.legislation.gov.au/Details/F2013L00075/Explanatory%20Statement/Text
