18th International Roundtable on
Business Survey Frames
Session 6 Globalisation
International Accounting Standards (IAS)/International
Financial Reporting Standards (IFRS) and Enterprise Groups
Nico Weydert
Statec, Luxembourg
Acronyms and context
• International Accounting Standards Board (IASB), based in London,
develops accounting standards
• International Financial Reporting Interpretations Committee (IFRIC)
a committee of the IASB that helps establishing and improving
standards
• IASB publishes standards in a series of pronouncements called
International Financial Reporting Standards (IFRSs)
- the IFRIC Interpretations (formerly SIC)
- International Accounting Standards (IAS)
• Seventh Directive (Council Directive 83/349) in 1983 on
consolidated accounts
• IAS Regulation in 2002 requiring all European Union companies
listed on a regular market to use IAS after 2005 (Regulation EC N°
1606/2002)
IAS and Enterprise groups
• Relevant standards (as of 2004):
– IAS 27 was entitled “Consolidated Financial Statements and
Accounting for Investments in Subsidiaries” till end 2003, now:
– IAS 27 Consolidated and Separate Financial Statements
–
–
–
–
–
SIC 12 on Special Purpose Entities
IAS 28 Accounting for Investment in Associates
IFRS 3 Business Combinations
IAS 24 Related Party Disclosures
IAS 14 Segment Reporting
• Benefits for statisticians?
IAS and Eurostat Recommendations manual: a comparison
IAS
• A group is a parent and all its
subsidiaries
• A parent is an entity that has
one or more subsidiaries
• A subsidiary is an entity
controlled by another entity
(parent)
• Control = power to govern the
financial and operating policies
of an entity
Manual
• Enterprise group = set of
enterprises controlled by the
group head
• group head : parent legal unit
not controlled by any other
legal unit
• Control = dominant influence
over the medium and longterm strategies of one or more
other legal units (subsidiaries)
IAS and Eurostat Recommendations manual: a comparison
IAS
• Control presumed to exist
when parent owns, directly or
indirectly more than half of the
voting power of an entity
(unless exceptional
circumstances)
Manual
• For control, the parent unit
must be able to influence
(directly or indirectly) the
decision in ordinary or
extraordinary meetings of all
the subsidiaries
• Acquisition of an absolute
majority (50%+1) of
shareholdings with voting
rights is the main instrument
used to take control
IAS and Eurostat Recommendations manual: a comparison
IAS
•
•
•
•
Control might also exist when
the parent owns half or less of
the voting power of entity e.g.
agreement with other investors,
or power to appoint or remove
the majority of the members of
the board of directors
Take into account potential
voting rights that might
contribute to control
A subsidiary is not excluded
from consolidation because its
business activities are dissimilar
No consolidation of a subsidiary
when control is intended to be
temporary (i.e. within 12 months)
Manual
•
•
Absolute majority of ownership
is neither a necessary nor a
sufficient condition to have
control:
– absenteeism in the
meetings
– contracts or agreements
affecting control
– shareholdings with limited
voting rights
– statutory provisions
Add majority-controlled units
whose accounts are not
included by virtue of Seventh
Directive
Special Purpose Entities (SPEs)
• Entities that create problems in the business registers
• An SPE is an entity created to accomplish a narrow and well-defined
objective (e.g. to effect a lease, research and development activities
or as securisation of financial assets)
• From an external point of view they operate in a predetermined way
so that no entity has explicit decision-making authority over the
SPE’s ongoing activities after its formation (they operate on socalled “autopilot”)
• Mostly 2 categories: Ancillary entities or Financial entities
• An SPE should be consolidated when the substance of the
relationship between an enterprise and the SPE indicates control
• The major difficulty: detect relations of control
Disclosure Requirements
• Main purpose of IAS is to provide reliable and transparent
information from an economic point of view to the public
• In consolidated financial statements the most interesting aspect was
in IAS 27.32 version 2000 : A listing of significant subsidiaries
including the name, country of incorporation or residence, proportion
of ownership interest and, if different, proportion of voting power
held
• IAS 27 (December 2003) dropped these disclosure requirements.
Provision of disclosure provided in a new version of IAS 24 on
Related Party Disclosures, though not with the same clarity
Statistics and Accounting
• Enterprise statistics rely heavily on accounting practices
• The Recommendations Manual is right to point out differences with
the Seventh Directive
• Differences between the Recommendations Manual and IAS are
fairly small. Therefore compliance with IAS should improve the ease
of delineation of enterprise groups in the future, even for not listed
companies
• IAS 27.12 provides for exhaustiveness: consolidated financial
statements shall include all subsidiaries of the parent!
Arcelor – A Multinational Group in the Steel Industry
• In 2002 Arcelor was created by a merger of Aceralia (Spain), Arbed
(Luxembourg) and Usinor (France), three European groups
• Turnover of 26 billion euros in 2003, 98 000 persons occupied in
more than 60 countries, crude steel production: 40.2 million tons
with a global market share of 14%
• Arcelor’s consolidated financial statements for 2003 were prepared
in accordance with IFRS
• Note 31 Listing of Group companies is divided into three parts:
– Companies under consolidation scope
• 442 companies fully consolidated (in addition to Arcelor S.A.)
• 223 companies consolidated using the equity method
– Non-consolidated related companies (292 companies)
– Affiliated companies not consolidated under the equity method
Arcelor (continued)
• Consolidaded group
– High number of companies with percentage of capital held is
less than 50%
– Difference between majority of ownership and the ability to
control the company
Consolidation method by Percentage of capital held
Percentage of capital
held
< 50%
> 50%
Consolidation
method
Total
Equity method
Full consolidation
Total
187
36
223
10
433
443
198
468
666
Arcelor (continued)
• The problem of the equity method
• The problem of minor enterprises
• Arcelor group in 2003: a set of 958 companies
• Comparison with other IFRS reportings like
– Nestlé
– BNP Paribas
– Problems with thresholds used
• IFRS compliance is new for European entreprise groups. How
strictly will accounts and auditors stick to the standards?