for Accounting Professionals
IAS 27 Separate Financial Statements
2011
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Robin Joyce
Professor of the Chair of
International Banking and Finance
Financial University
under the Government of the Russian Federation
Visiting Professor of the Siberian Academy of Finance and Banking
Moscow, Russia
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2011
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CONTENTS
Introduction..................................................................................................................... Error! Bookmark not defined.
Key Changes ................................................................................................................... Error! Bookmark not defined.
Definitions ....................................................................................................................... Error! Bookmark not defined.
Main features .................................................................................................................. Error! Bookmark not defined.
Objective ......................................................................................................................... Error! Bookmark not defined.
Scope............................................................................................................................... Error! Bookmark not defined.
Measurement .................................................................................................................. Error! Bookmark not defined.
The asset, or liability ...................................................................................................... Error! Bookmark not defined.
The transaction ............................................................................................................... Error! Bookmark not defined.
Market participants ......................................................................................................... Error! Bookmark not defined.
The price ......................................................................................................................... Error! Bookmark not defined.
Application to non-financial assets-Highest and best use for non-financial assets . Error! Bookmark not defined.
Valuation premise for non-financial assets .................................................................. Error! Bookmark not defined.
Application to liabilities and an undertaking's own equity instruments .................... Error! Bookmark not defined.
Financial liability with a demand feature ...................................................................... Error! Bookmark not defined.
Application to financial assets and financial liabilities with offsetting positions in market risks or
counterparty credit risk .................................................................................................. Error! Bookmark not defined.
Fair value at initial recognition ...................................................................................... Error! Bookmark not defined.
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Valuation techniques ...................................................................................................... Error! Bookmark not defined.
Inputs to valuation techniques ...................................................................................... Error! Bookmark not defined.
Inputs based on bid and ask prices .............................................................................. Error! Bookmark not defined.
Level 1 inputs .................................................................................................................. Error! Bookmark not defined.
Adjustments to Level 1 Inputs ....................................................................................... Error! Bookmark not defined.
Level 2 inputs .................................................................................................................. Error! Bookmark not defined.
Level 3 inputs .................................................................................................................. Error! Bookmark not defined.
Disclosure ....................................................................................................................... Error! Bookmark not defined.
Self-Test Questions ........................................................................................................ Error! Bookmark not defined.
Answers .......................................................................................................................... Error! Bookmark not defined.
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IAS 27 Separate Financial Statements
effective date: 1 January 2013.
Introduction
IAS 27 has lost its rules on consolidated financial statements to IFRS 10 (and disclosure to IFRS 12). Separate Financial Statements
remain in IAS 27. (During the transition period to 2013, the earlier book will be available.)
These simpler statements are used either as a complement to consolidated financial statements, where legislation (or regulation)
requires it, or for intermediate holding companies. IAS 27 enables intermediate holding companies to avoid subconsolidations, if the
parent presents consolidated financial statements and legislation allows.
Also, IAS 27 provides rules on Group Reorganisations, when a new parent company is created, though the net assets remain the same.
IAS 27 contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an
undertaking prepares separate financial statements.
IAS 27 requires an undertaking preparing separate financial statements to account for those investments at cost, or in accordance
with IFRS 9 Financial Instruments.
Scope
IAS 27 shall be applied in accounting for investments in subsidiaries, joint ventures and associates when an undertaking
elects, or is required by local regulations, to present separate financial statements. IAS 27 does not mandate which undertakings
produce separate financial statements. It applies when an undertaking prepares separate financial statements that comply with IFRS.
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Definitions
The following terms are used in IAS 27 with the meanings specified:
Consolidated financial statements are 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 undertaking.
Separate financial statements are those presented by a parent (ie an investor with control of a subsidiary) or an investor with
joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or in accordance
with IFRS 9Financial Instruments.
The following terms are defined in IFRS 10, IFRS 11 and IAS 28 :
●
associate
●
control of an investee
●
group
●
joint control
●
joint venture
●
joint venturer
●
parent
●
significant influence
●
subsidiary.
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Separate financial statements are those presented in addition to consolidated financial statements, or in addition to financial statements
in which investments in associates, or joint ventures, are accounted for using the equity method, other than in the circumstances set out
below. Separate financial statements need not be appended to, or accompany, those statements.
Financial statements in which the equity method is applied are not separate financial statements. Similarly, the financial statements of an
undertaking that does not have a subsidiary, associate or joint venturer's interest in a joint venture are not separate financial statements.
EXEMPTION
An undertaking that is exempted in accordance with paragraph 4(a) of IFRS 10 from consolidation or paragraph 17 of IAS 28 from
applying the equity method may present separate financial statements as its only financial statements.
Preparation of separate financial statements
Separate financial statements shall be prepared in accordance with all applicable IFRSs.
When an undertaking prepares separate financial statements, it shall account for investments in subsidiaries, joint ventures
and associates either:
(i)
at cost, or
(ii)
in accordance with IFRS 9.
The undertaking shall apply the same accounting for each category of investments.
Investments accounted for at cost shall be accounted for in accordance with IFRS 5 when they are classified as held for sale
(or included in a disposal group that is classified as held for sale). The measurement of investments accounted for in
accordance with IFRS 9 is not changed in such circumstances.
If an undertaking elects, in accordance with IAS 28, to measure its investments in associates, or joint ventures, at fair value through profit
or loss in accordance with IFRS 9, it shall also account for those investments in the same way in its separate financial statements.
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An undertaking shall recognise a dividend from a subsidiary, a joint venture or an associate, in profit or loss in its separate
financial statements, when its right to receive the dividend is established.
Group Reorganisation
When a parent reorganises the structure of its group by establishing a new undertaking as its parent, in a manner that satisfies the
following criteria:
(i)
the new parent obtains control of the original parent by issuing equity instruments in exchange for existing equity instruments of the
original parent;
(ii)
the assets and liabilities of the new group and the original group are the same immediately before and after the reorganisation; and
(iii)
the owners of the original parent before the reorganisation have the same absolute and relative interests in the net assets of the
original group and the new group immediately before and after the reorganisation,
and the new parent accounts for its investment in the original parent at cost in its separate financial statements,
the new parent shall measure cost at the carrying amount of its share of the equity items shown in the separate financial statements of
the original parent at the date of the reorganisation.
Similarly, an undertaking that is not a parent (such as a single company) might establish a new undertaking as its parent in a manner that
satisfies the criteria above. The requirements apply equally to such reorganisations. In such cases, references to 'original parent' and
'original group' are to the 'original undertaking'.
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Disclosure
An undertaking shall apply all applicable IFRSs when providing disclosures in its separate financial statements.
When a parent, in accordance with IFRS 10, elects not to prepare consolidated financial statements, and instead prepares
separate financial statements, it shall disclose in those separate financial statements:
(1)
the fact that the financial statements are separate financial statements;
that the exemption from consolidation has been used;
the name and principal place of business (and country of incorporation, if different) of the undertaking whose
consolidated financial statements that comply with IFRS have been produced for public use; and the address
where those consolidated financial statements are obtainable.
(2)
a list of significant investments in subsidiaries, joint ventures and associates, including:
(i)
the name of those investees.
(ii)
the principal place of business (and country of incorporation, if different) of those investees.
(iii) its proportion of the ownership interest (and its proportion of the voting rights, if different) held in
those investees.
(3)
a description of the method used to account for the investments listed under (2).
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When a parent without subsidiaries, or an investor with joint control of, or significant influence over, an investee prepares
separate financial statements, the parent, or investor, shall identify the financial statements prepared in accordance with IFRS
10, IFRS 11 or IAS 28 ) to which they relate. The parent or investor shall also disclose in its separate financial statements:
(1)
the fact that the statements are separate financial statements and the reasons why those statements are prepared if not
required by law.
(2)
a list of significant investments in subsidiaries, joint ventures and associates, including:
(3)
(i)
the name of those investees.
(ii)
the principal place of business (and country of incorporation, if different) of those investees.
(iii)
its proportion of the ownership interest (and its proportion of the voting rights, if different) held in those
investees.
a description of the method used to account for the investments listed under (2).
The parent or investor shall also identify the financial statements prepared in accordance with IFRS 10, IFRS 11 or IAS 28 to
which they relate.
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