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IFRS 10 - The exemption from preparing consolidated financial statements requirements in IFRS 10

Date recorded:

Paragraph 4 of IFRS 10 provides relief whereby a parent need not present consolidated financial statements if it meets particular conditions, including the requirement that “its ultimate or any intermediate parent produces consolidated financial statements that are available for public use and comply with IFRSs.”

There are two issues to be addressed. The first issue is whether the exemption is applicable if its ultimate or any intermediate parent is an investment entity which prepares consolidated financial statements but measures investees at fair value. The second issue is whether the intermediate parent loses the exemption if the ultimate parent does not present consolidated financial statements. This would be the case if the parent entity prepares one set of financial statements in which it accounts for all of the investments at fair value, because it does not have a subsidiary which provides investment-related services.

Staff recommended the Committee should not take the first issue onto its agenda, because the existing Standards sufficiently address the issue as discussed in the Staff paper. Staff presented a tentative agenda decision in relation to this issue and asked the Committee for comments.

Staff also recommended the Committee should take the second issue onto its agenda in the Annual Improvements.

A member raised concern on Staff’s analysis which seemed to indicate that the presence of a sister company triggered the consolidation of an intermediary company with a parent. This is not how the exemption works in practice, it is the fact that a parent has a subsidiary triggers the consolidation requirement. Any amendment in the Standard should reflect a more linear structure and not the presence of sister companies.

Another member said that Staff have correctly read the words in the standard but it is not what the Board had intended when the standard was released. This members proposed an amendment but one that is the opposite to what Staff have proposed. Another member agreed with this member and said that the intermediaries should provide information i.e. if it's not consolidated by the ultimate parent then it should provide the relevant information.

Another member said that the two issues must be looked at jointly and not separately.

Another member supported Staff because the information of an intermediary may not be immediately obvious in the parent companies consolidated financial statements.

Overall the Committee agreed to adopt an approach opposite to what Staff had recommended and therefore Staff will have to bring this issue back at a future meeting after taking into consideration the discussion held by members.

Staff said that an exemption is provided in very exceptional circumstances and therefore they would need to assess the consequences of the right answer carefully to avoid unintended consequences.

A member suggested that when Staff bring this issue back to the Committee, Staff should consider the effect of an intermediary that is held for sale.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.