International Accounting and Auditing

International Financial Reporting Standards

Ernst & Young
Q&As
Standards applicable for annual periods beginning on 1 January 2010
IAS 27 - CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
IAS 27.1-1 - Combined financial statements
IAS 27.1-1 - Combined financial statements
Was this Q&A helpful?
Issue
Are combined financial statements acceptable as general-purpose financial
statements under IFRS?
Fact pattern
A client wishes to prepare general-purpose financial statements under IFRS that
combine the financial statements of various legal entities, segments, reportable
segments, branches, divisions, geographical jurisdictions, or some other entities
that can be described coherently (the preceding list is not all-inclusive) that are
under common control.
Conclusion
There are limited circumstances in which combined financial statements present
fairly the financial position, financial performance, and cash flows for general
purposes under IFRS. The preparation of general-purpose combined financial
statements does not alleviate the need to prepare consolidated financial
statements.
Engagement teams are required to consult in accordance with the
policies noted in Section 3.4.2.2 of the Global Assurance Policy Manual,
when preparing combined financial statements, to determine if such
financial statements are general-purpose.
To prepare general-purpose combined financial statements, all of the following
must be clearly identified:
l Whether the entities are under common control for the full or a portion of
the reporting period
l The purpose of the financial statements
l The intended users.
The client must be able to coherently describe the various legal entities,
segments, reportable segments, branches, divisions, geographical jurisdictions,
or other units (the preceding list is not all-inclusive) that will be included in the
combined financial statements. Careful consideration is required when
concluding that it is appropriate to exclude any units from the combined
financial statements (such as unprofitable operations) that are similar to the
units that are being included in the combined financial statements. Such
exclusion must be assessed for appropriateness in the context of the purpose of
the financial statements, the intended users, and the terms and conditions of
any relevant agreements (e.g., acquisitions, spin-offs).
Once it is determined what units are being included in the combined financial
statements, the comparative information presented is the comparative
information for such units.
See Appendix A for application guidance.
Common Control
See Q&A IFRS 3.Appendix B2-1 Families and entities under common control
for a discussion of whether entities are under common control in the context of
families and/or a limited number of shareholders. Where management asserts
that common control exists outside of a legal structure (e.g., written agreement
for management, families), evidence that common control exists is usually
needed to conclude that combined financial statements are appropriate.
General-purpose combined financial statements can only be prepared if the
entities are under common control for the full or a portion of the reporting
period. Furthermore, the financial results of each combined entity can only be
included in the general-purpose combined financial statements for the period in
which the entity was under common control. Events that occur after the end of a
reporting period that result in common control are non-adjusting events.
Purpose and users of combined financial statements
A reporting entity is an entity for which there are users who rely on the
financial statements as their major source of financial information about
the entity. Therefore, it is a matter of judgment, whether it is appropriate to
prepare general-purpose combined financial statements, depending upon the
facts and circumstances related to both the purpose and the users of the
financial statements, which are interrelated.
To illustrate the conclusions of this Q&A, facts and circumstances that indicate it
Page 1 of 8 Print Documents...Printer Friendly
12/9/2010 http://gaait-aa.ey.net/PrintDocuments.aspx?PrintView=True&ProductId=110
is usually appropriate to prepare general-purpose combined financial statements
is when they are required by regulators on behalf of investors (e.g., the US
Securities and Exchange Commission). This is because the regulators purport to
represent the needs of a wide range of users (investors) for a general purpose,
for which the investors cannot otherwise command the financial information.
Situations where regulators typically require combined financial statements
include:
l Carve-out transactions
l Spin-off transactions
l Financing transactions that require approval by a broad group of investors
l Transactions in which the combined entity will become the predecessor
Financial statements of a new entity,
l Transactions in which the combined entity will be a material acquisition (by
the acquirer)
In addition, there may be circumstances when several third parties (banks,
acquirers in a private bidding process) all request financial statements that
combine the same entities that is, the same combined financial statements. In
such cases, the combined financial statements might be general-purpose
because they are used by a wide range of users.
When preparing general-purpose combined financial statements, the entity
must include all normal consolidation entries (such as elimination of group
transactions, unrealised profit elimination, etc). In addition, the entity must
disclose the following:
l The fact that the financial statements are combined financial statements
l The reason why combined financial statements are prepared
l The basis for determining which units are included in the combined financial
statements
l The basis of preparation of the combined financial statements
l The comprehensive related party disclosures.
In addition, the entity must consider who has the appropriate knowledge and
authority to authorise the general-purpose combined financial statements for
issue.
Engagement teams are required to consult in accordance with Section
3.4.2.2 of the Global Assurance Policy Manual regarding any allocation
methods used with respect to overhead expenses of the combined
entities, as such allocations may indicate that the combined financial
statements are pro forma (and therefore special-purpose and not
general-purpose). In addition, engagement teams are required to
consult in accordance with Section 3.4.2.2 of the Global Assurance
Policy Manual if the combined financial statements include the first-
time adoption of IFRS.
When combined financial statements are not general-purpose
General-purpose combined financial statements are usually not appropriate
when requested by parties that have the ability to otherwise command the
desired combined financial information through other means. In such cases, the
combined financial statements are often deemed special-purpose, which means
that they do not present fairly the financial position, financial performance, and
cash flows for general purposes under IFRS. Examples of facts and
circumstances that might illustrate such situations include:
l Lenders (banks) for the purpose of approving a loan or ensuring covenant
compliance;
l Governments and their agencies other than investor regulators (e.g., tax
authorities);
l A single potential acquirer;
l Board of directors or management;
When a group of family members requests combined financial statements,
judgment is required to assess the facts and circumstances; whether or not
combined financial statements are general-purpose or special-purpose
depends on the purpose for which the family intends to use the combined
financial statements (see relevant guidance above).
In cases where it is concluded that combined financial statements are not
general-purpose and do not present fairly the financial position, financial
performance, and cash flows for general purposes under IFRS, alternative
options might include:
l Financial statements of each of the entities that would have been included in
the combined financial information
l Special-purpose financial statements (and restricted use audit report) or an
agreed-upon procedures report that addresses the process of combining the
individual financial statements and eliminations therein, and the procedures
performed, without referring to a "true and fair view" under IFRS. See
Section 4.2 in the Global Assurance Policy Manual Association with
Unaudited Financial Statements in Compilation, Review, Agreed-Upon
Procedures and Other Engagements for additional information.
Reasons for conclusion
The term reporting entity is not yet defined in The Conceptual Framework for
Financial Reporting (the Framework). However, paragraph 8 of the Framework
for the Preparation and Presentation of Financial Statements, which preceded
the current Framework stated:
A reporting entity is an entity for which there are users who rely on
Page 2 of 8 Print Documents...Printer Friendly
12/9/2010 http://gaait-aa.ey.net/PrintDocuments.aspx?PrintView=True&ProductId=110
the financial statements as their major source of financial
information about the entity.
Paragraph OB12 of the Framework states:
The objective of general purpose financial reporting is to provide
financial information about the reporting entity that is useful to
existing and potential investors, lenders and other creditors in
making decisions about providing resources to the entity. Those
decisions involve buying, selling or holding equity and debt
instruments, and providing or settling loans and other forms of
credit.
Paragraph OB5 of the Framework states:
Many existing and potential investors, lenders, and other creditors
cannot require reporting entities to provide information directly to
them and must rely upon general purpose financial reports for much
of the financial information that they need. Consequently, they are
the primary users to whom general purpose financial reports are
directed.
Thus, in justifying the preparation of general-purpose combined financial
statements, it must be clear what the purpose or intended use is and who the
users are expected to be, in order to adequately define the reporting entity.
In May 2008, the IASB published a discussion paper on Phase D of the
Framework on The Reporting Entity, which states in paragraph 1:
The boards existing conceptual frameworks do not include a
reporting entity concept. The IASBs Framework for the Preparation
and Presentation of Financial Statements defines the reporting entity
in one sentence with no further explanation. The FASBs Statements
of Financial Accounting Concepts do not contain a definition of a
reporting entity or discussion of how to identify one. As a result,
neither framework specifically addresses the reporting entity
concept. The objective of this phase of the project is to develop a
reporting entity concept for inclusion in the boards common
conceptual framework. (Emphasis added)
While normally a Discussion Paper is not a sufficient basis for interpreting or
applying current IFRS, the above statement in the Discussion Paper states the
Boards views on current IFRS, not what they intend future IFRS to be, and
therefore, it is appropriate to consider. Since the IASB concluded that current
IFRS does not clearly define the reporting entity concept, there is some latitude
in defining the reporting entity in the preparation of general-purpose combined
financial statements.
In July 2009, the IASB issued IFRS for Small and Medium-Sized Entities (SMEs).
Paragraph P6 of IFRS for SMEs states:
IFRSs set out recognition, measurement, presentation and
disclosure requirements dealing with transactions and other events
and conditions that are important in general purpose financial
statements. They may also set out such requirements for
transactions, events and conditions that arise mainly in specific
industries. IFRSs are based on the Framework, which
addresses the concepts underlying the information presented
in general purpose financial statements. The objective of the
Framework is to facilitate the consistent and logical formulation of
IFRSs. It also provides a basis for the use of judgement in resolving
accounting issues. (Emphasis added)
IFRS for SMEs defines combined financial statements as:
The financial statements of two or more entities controlled by a
single investor.
Paragraphs 9.28-9.30 of IFRS for SMEs state:
Combined financial statements are a single set of financial
statements of two or more entities controlled by a single investor.
This IFRS does not require combined financial statements to be
prepared.
If the investor prepares combined financial statements and
describes them as conforming to the IFRS for SMEs, those
statements shall comply with all of the requirements of this IFRS.
Intercompany transactions and balances shall be eliminated; profits
or losses resulting from intercompany transactions that are
recognised in assets such as inventory and property, plant and
equipment shall be eliminated; the financial statements of the
entities included in the combined financial statements shall be
prepared as of the same reporting date unless it is impracticable to
do so; and uniform accounting policies shall be followed for like
transactions and other events in similar circumstances.
The combined financial statements shall disclose the following:
(a) the fact that the financial statements are combined financial
statements.
(b) the reason why combined financial statements are prepared.
(c) the basis for determining which entities are included in the
Page 3 of 8 Print Documents...Printer Friendly
12/9/2010 http://gaait-aa.ey.net/PrintDocuments.aspx?PrintView=True&ProductId=110
combined financial statements.
(d) the basis of preparation of the combined financial statements.
(e) the related party disclosures required by Section 33 Related
Party Disclosures.
The definition of general-purpose financial statements in IFRS for SMEs is very
similar to the reference to general-purpose financial statements in paragraph
OB2 of the Framework. In addition, IFRS for SMEs is based on the same
Framework as full IFRS. Therefore, if IFRS for SMEs and full IFRS have the same
purpose and the same basis, if IFRS for SMEs allows combined financial
statements, then full IFRS must also allow combined financial statements,
because none of the individual standards under full IFRS prohibits combined
financial statements. IFRS for SMEs establishes that the units must be under
common control to present combined financial statements.
In November 2009, the IFRS Interpretations Committee received a request to
address the issue of combined and carve-out financial statements, and whether
such financial statements are general-purpose under IFRS.
The staff paper for the November 2009 meeting presented multiple views
regarding combined financial statements. The IFRS Interpretations Committee
declined to discuss the issue and issued an Agenda Decision in January 2010 not
to add this item to its agenda. The Agenda Decision states:
The IFRIC noted that the ability to include entities within a set of IFRS
financial statements depends on the interpretation of 'reporting entity' in
the context of common control.
As none of the views were dismissed by the IFRS Interpretations Committee,
there are multiple views that may be supportable under IFRS. While normally a
Staff Paper is not a sufficient basis for interpreting or applying current IFRS, the
Agenda Decision states the IFRS Interpretations Committees view that it is
necessary to interpret reporting entity. Since current IFRS does not clearly
define the reporting entity concept (which is supported by the Discussion Paper
on the Reporting Entity), the Agenda Decision provides some latitude in defining
the reporting entity in the preparation of general-purpose combined financial
statements.
In March 2010, the IASB issued an ED Conceptual Framework for Financial
Reporting: The Reporting Entity. The ED does not contain a definition, only a
description of reporting entity:
RE2 A reporting entity is a circumscribed area of economic activities whose
financial information has the potential to be useful to existing and
potential equity investors, lenders and other creditors who cannot directly
obtain the information they need in making decisions about providing
resources to the entity and in assessing whether management and the
governing board of that entity have made efficient and effective use of
the resources provided.
RE3 A reporting entity has three features:
(a) economic activities of an entity are being conducted, have been
conducted or will be conducted;
(b) those economic activities can be objectively distinguished from
those of other entities and from the economic environment in
which the entity exists; and
(c) financial information about the economic activities of that entity
has the potential to be useful in making decisions about providing
resources to the entity and in assessing whether the management
and the governing board have made efficient and effective use of
the resources provided.
These features are necessary but not always sufficient to identify a reporting
entity.
The ED also specifically addresses combined financial statements:
RE12 Combined financial statements include information about two or more
commonly controlled entities. Combined financial statements do not
include information about the controlling entity and are often prepared
when the controlling entity does not prepare financial reports. Combined
financial statements might provide useful information about the
commonly controlled entities as a group.
Neither the description of reporting entity, nor the specific paragraph on
combined financial statements contain specific guidance regarding the
accounting for general-purpose combined financial statements. Therefore, it is
appropriate to use paragraphs 10-12 of IAS 8 and analogise to accounting
pronouncements of other standard-setting bodies, if those pronouncements are
consistent with IFRSs and the Framework (for example, see Appendix A US
GAAP).
An entity may wish to consider the guidance in US GAAP in determining whether
it is appropriate to present general-purpose combined financial statements.
However, whereas in some circumstances US GAAP might allow general-purpose
combined financial statements where there is not common control (but there is
common management), our view is that general-purpose combined financial
statements are only prepared under IFRS when common control exists (in
addition to the other factors noted above). That being said, a fact pattern in
Page 4 of 8 Print Documents...Printer Friendly
12/9/2010 http://gaait-aa.ey.net/PrintDocuments.aspx?PrintView=True&ProductId=110
which family members together control two entities might be considered
common control under IFRS (see Q&A IFRS 3.Appendix B2-1 Families and
entities under common control). Therefore, it might be possible to reach the
same conclusion under US GAAP and IFRS regarding the preparation of general-
purpose combined financial statements, via different logic.
Appendix A - US GAAP
Guidance in US GAAP on carve-out financial statements is in a SEC Staff
Accounting Bulletin Topic 5.Z.7 Accounting for the spinoff of a subsidiary:
Facts: A Company disposes of a business through the distribution
of a subsidiary's stock to the Company's shareholders on a pro rata
basis in a transaction that is referred to as a spinoff.
Question: May the Company elect to characterize the spinoff
transaction as resulting in a change in the reporting entity and
restate its historical financial statements as if the Company never
had an investment in the subsidiary, in the manner specified by
paragraph 34 of APB Opinion 20?
Interpretive Response: Not ordinarily. If the Company was
required to file periodic reports under the Exchange Act within one
year prior to the spinoff, the staff believes the Company should
reflect the disposition in conformity with Statement of Financial
Accounting Standards No. 142. This presentation most fairly and
completely depicts for investors the effects of the previous and
current organization of the Company. However, in limited
circumstances involving the initial registration of a company under
the Exchange Act or Securities Act, the staff has not objected to
financial statements that retroactively reflect the reorganization of
the business as a change in the reporting entity if the spinoff
transaction occurs prior to effectiveness of the registration
statement. This presentation may be acceptable in an initial
registration if the Company and the subsidiary are in
dissimilar businesses, have been managed and financed
historically as if they were autonomous, have no more than
incidental common facilities and costs, will be operated and
financed autonomously after the spinoff, and will not have
material financial commitments, guarantees, or contingent
liabilities to each other after the spinoff. This exception to the
prohibition against retroactive omission of the subsidiary is intended
for companies that have not distributed widely financial statements
that include the spunoff subsidiary. Also, dissimilarity contemplates
substantially greater differences in the nature of the businesses than
those that would ordinarily distinguish reportable segments as
defined by Statement of Financial Accounting Standards No. 131.
From the EY SEC Accounting Manual 2.2.4
For purposes of S-X Rule 3-05, a business is identified if, after
evaluating all available facts and circumstances, there is sufficient
continuity of operations so that disclosure of prior financial
information is material to an understanding of future operations.
There is a presumption that a separate entity, subsidiary, division,
or investment accounted for under the equity method is a business.
However, the acquisition of a component of an entity, such as a
product line, also may be considered a business
Because these guidelines are not all-inclusive, management must
use judgment in this area. The SEC staff's analysis of whether an
acquisition constitutes the acquisition of a business, rather than of
assets, focuses primarily on whether the nature of the revenue
producing activity associated with the acquired assets will remain
generally the same after the acquisition. New carrying values of
assets, or changes in financing, management, operating procedures,
or other aspects of the business are not unusual following a
business acquisition. The SEC staff believes that such changes
typically do not eliminate the relevance of historical financial
statements. The SEC staff encourages registrants who have
succeeded to a revenue-producing activity by merger or acquisition
with at least one of the factors described above remaining after the
acquisition, to consult with the SEC staff before deciding to omit
financial statements and pro forma information from their SEC
filings.
Excerpt from Accounting Research Bulletin No. 51 (paragraph 22-23) as
amended by SFAS No. 160 (ASC 810-10-55-1B and ASC 810-10-45-10)
To justify the preparation of consolidated financial statements, the
controlling financial interest should rest directly or indirectly in one
of the entities included in the consolidation. There are
circumstances, however, where combined financial statements (as
distinguished from consolidated financial statements) of commonly
controlled companies are likely to be more meaningful than their
separate financial statements. For example, combined financial
statements would be useful where one individual owns a controlling
financial interest in several entities that are related in their
operations. Combined financial statements might also be used to
present the financial position and the results of operations of entities
under common management.
Page 5 of 8 Print Documents...Printer Friendly
12/9/2010 http://gaait-aa.ey.net/PrintDocuments.aspx?PrintView=True&ProductId=110
If combined financial statements are prepared for a group of related
entities, such as a group of commonly controlled entities, intra-
entity transactions and profits or losses shall be eliminated, and
noncontrolling interests, foreign operations, different fiscal periods,
or income taxes shall be treated in the same manner as in
consolidated financial statements.
From US FRD Noncontrolling Interests in Consolidated Financial Statements
(Chapter 8)
Control is the primary basis for presentation of consolidated
financial statements. There are, however, certain circumstances
when the presentation of financial statements of individual entities is
not as meaningful as the presentation of combined financial
statements for related entities. Combined financial statements may
be needed to present related entities under common control or
related entities with common management. Combined financial
statements are often presented for filings in accordance with various
statutory or regulatory requirements.
The fundamental difference between combined and consolidated
financial statements is that there is no controlling financial interest
present between or among the combined entities.
Question: What is the definition of common management as used in the
requirement for combined financial statements?
Response: We believe that the determination of whether entities are under
common management is a determination to be made based on individual facts
and circumstances. To justify combined presentation, we would expect evidence
to exist that indicates that the subsidiaries are not operated as if they were
autonomous. This evidence could include:
l A common CEO
l Common facilities and costs
l Commitments, guarantees or contingent liabilities among the entities
l Commonly financed activities
This list is not all-inclusive and there could be other factors relevant to the
determination of whether or not subsidiaries are under common management.

Fact pattern Analysis
1 - IPO of
subsidiaries
Group A will complete a legal
reorganisation after the end of the
reporting period, but at the same
time as a proposed IPO. Subsidiaries
C and D will be spun-off in the IPO,
but the Parent A and subsidiary B
will not. The regulator is requiring
financial statements of C/D.
Management also wants to prepare
combined financial statements for
A/B.

General-purpose combined financial statements can likely be prepared for
Entities C and D.
l Common control entities A, B, C, and D are all under common control as
of the reporting date.
l Purpose and Users an IPO is a broad purpose and the financial statements
will be required by the regulator for use by a wide range of users (the
investors) after the IPO.

Further analysis is needed to determine the purpose and users of the combined
financial statements for A/B, and whether they are general purpose or special
purpose (see other Scenarios).
2 - Entities
brought
together by
written
agreement
A Board of Directors manages Entity
A and Entity B as one economic
entity through a written agreement.
The Board of Directors wants to
prepare combined financial
statements of Entity A and Entity B.
Further analysis is needed.
l Common control the terms and conditions of the written agreement meet
the criterion in paragraph B2 of Appendix B to IFRS 3, such that the Board
of Directors controls both Entity A and Entity B, and thus common control
exists; therefore, general-purpose combined financial statements might be
allowed.
l Purpose and Users additional information is needed. If required by the
Board of Directors of Entity A and Entity B solely for management purposes,
combined financial statements are likely special-purpose, because the
Board of Directors can command the desired information to meet its specific
needs. However, if the combined financial statements are required for
regulatory reasons (e.g., Entity A and B will be combined in an IPO) they
would be general-purpose combined financial statements, because they will
meet the informational needs of a wide range of users.


3 - Decision to
sell a segment
Group A operates in 40 countries and
has four business segments. Group
As management decided to sell one
of the segments, which
manufactures medical appliances. In
some countries, the medical segment
is a single subsidiary; in other
countries, the medical segment is a
division of a legal entity. Group A
wants to prepare combined financial
statements for the medical appliance
segment.
Further analysis is needed.
l Common control the segment (which consists of subsidiaries and divisions
within legal entities) are all under the common control of Group A as of the
reporting date.
l Purpose and Users additional information is needed. If the potential
acquirer requests them solely for the needs of the potential acquirer, such
combined financial statements might be deemed special-purpose, because
the potential acquirer can command the desired information as a condition
to closing the transaction. However, if they are required by a regulator
(e.g., the acquisition of the segment will be a material acquisition for the
acquirer financed by an offering of shares to the public) or several parties
are interested in financial information for that segment, they might be
general-purpose combined financial statements, because they meet the
informational needs of a wide range of users.
Page 6 of 8 Print Documents...Printer Friendly
12/9/2010 http://gaait-aa.ey.net/PrintDocuments.aspx?PrintView=True&ProductId=110

4
Unprofitable
operations in a
segment
Same as Scenario 3. Of the 40
countries with medical appliance
segments, country Y and Z are
unprofitable, whereas the rest are
profitable. Group A intends to sell
the entire segment, but it is likely
that the acquirer will subsequently
close the medical appliance
segments in country Y and Z.
Further analysis is needed for the reasons described in Scenario 3 to
determine whether combined financial statements would be general-purpose
or special-purpose.

If the combined financial statements are deemed general-purpose, then the
operations of country Y and Z are included and then subsequently reflected as
discontinued operations, because they were acquired, even if control of those
businesses is transitory.

If the fact pattern were altered such that the acquirer does not acquire the
operations in country Y and Z, then these operations would not be included in
the general-purpose combined financial statements (if applicable).
5 Geo-
graphic
segment
Group A operates in three business
segments in three countries (X, Y
and Z). Group A manages along
business segment lines:
l manufacture of confectionary;
l retail banking; and
l construction of industrial
properties.
Group As management want to
prepare combined financial
statements of all of its operations in
country Z, which are owned by
different legal entities in the group.

Further analysis is needed.
l Common control operations in country Z (which consist of segments
within legal entities) are under the common control of Group A
l Purpose and Users additional information is needed. If required for tax
purposes, combined financial statements are special-purpose, because the
tax authority can command the desired information through its
governmental authority, to meet its specific needs. However, if the
combined financial statements are required for regulatory reasons (e.g., the
operations in country Z will be spun-off into an IPO) they might be general-
purpose combined financial statements, because they meet the needs of a
wide range of users.
6 - In-
progress
restructuring
by single
shareholder
Shareholder Z owns companies (A,
B, and C) that have different
businesses and do not trade with
each other. Shareholder Z created a
holding company X, to hold the
shares in all of the companies. To
date, X acquired A and B.
Shareholder Z intends to complete
the reorganisation over the next
year. Shareholder Z wants to
prepare combined financial
statements of A, B, and C.

Further analysis is needed.
l Common control because shareholder Z is the sole shareholder of A, B
and C, Shareholder Z has control over such entities (as defined in paragraph
B2 of Appendix B to IFRS 3); therefore, common control exists.
l Purpose and Users additional information is needed. If required by a bank
for lending purposes, combined financial statements are likely to be special-
purpose, because the bank can command the desired information as a
condition to the loan, to meet its specific needs. However, if the combined
financial statements are required for regulatory reasons (e.g., shares in
company X, including A, B, and C will be issued in an IPO) and thus financial
statements will be used broadly by investors, they might be general-
purpose combined financial statements, because they meet the needs of a
wide range of users.

7 - In-
progress
restructuring
by two
shareholders
Same as Scenario 6, but
Shareholder Z shares ownership over
each of the entities with
shareholder Y, and together they
plan the reorganisation. Shareholder
Y and Z want to prepare combined
financial statements of A, B, and C.
Further analysis is needed to determine whether general-purpose combined
financial statements can be prepared that include companies A, B, and C.
l Common control judgment is required to determine if shareholder Y and Z
are acting collectively to control companies A, B, and C. See Q&A IFRS
3.Appendix B2-1 Families and entities under common control for a
discussion of whether entities are under common control in the context of
families.
l Purpose and Users additional information is needed. Same as Scenario 6.
8 Exclusion
of part of a
legal entity
(See graphic below). A group has
two lines of business. Subsidiary D, a
division within subsidiary E and a
division in Parent A all develop
software, and are being sold as a
group. Parent B, Parent C,
subsidiary F, and the remaining
divisions of Parent A and subsidiary
E all manufacture hardware. Holding
Co. has no operations.
Management wants to prepare
combined financial statements for
each of the hardware and software
business.
Further analysis is needed to determine whether general-purpose combined
financial statements can be prepared for each of the hardware and software
businesses.
l Common control all of the parents and subsidiaries that include the
hardware and software businesses are under the common control of the
Holding Co.
l Purpose and Users additional information is needed as described in
scenarios above.
This example illustrates that it might be possible to combine parts of legal
entities (and exclude other parts of legal entities) if the parts that are included
can be coherently described and the inclusion and exclusion is appropriate
based on the intended purpose and users of the financial statements.


Page 7 of 8 Print Documents...Printer Friendly
12/9/2010 http://gaait-aa.ey.net/PrintDocuments.aspx?PrintView=True&ProductId=110


Go To Document ID: EY QA IAS 27R.1-1
Last Modified Date:03 Dec 2010

Date approved by IFRS Policy Committee: May 2009
Date amended by IFRS Policy Committee: May 2010
Date amended by IFRS Policy Committee: December 2010

Page 8 of 8 Print Documents...Printer Friendly
12/9/2010 http://gaait-aa.ey.net/PrintDocuments.aspx?PrintView=True&ProductId=110