IASB effect analyses for IFRS 10 and IFRS 11

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08 Sep 2011

The IASB has posted to its website effect analyses for IFRS 10 Consolidated Financial Statements (including IFRS 12 Disclosure of Interests in Other Entities) and IFRS 11 Joint Arrangements (see our earlier story for more information about the effects analysis for IFRS 11).

The effect analyses provide detailed insights into the potential impacts of the new requirements using case studies and other quantitative and qualitative material. They include an assessment of both the costs incurred by preparers of financial statements and the costs incurred by users of financial statements when information is not available. The analyses also consider the comparative advantage that preparers have in developing information that users would otherwise have to develop themselves.

The effects analysis for IFRS 10 includes the following observations:

  • IFRS 10 does not introduce new concepts, but instead builds on the control guidance that existed in IAS 27 and SIC-12 by adding additional context, explanation and application guidance that is consistent with the definition of control. Accordingly, at a very basic level, most consolidation decisions should be unaffected by the new consolidation model in IFRS 10
  • IFRS 10 will change the way in which control of structured entities is assessed, by focusing on all three elements of control (power, exposure or rights to variable returns and ability to use power to affect returns), rather than on risks and rewards which sometimes was the case when applying SIC-12. This may result in the consolidation of some entities previously 'off balance sheet' due to the brighter lines in IAS 27 and SIC-12
  • The IASB believes that although IFRS 10 contains an explicit requirement to continually assess control, it will not be necessary to constantly monitor and track changes in each factor that might affect control, as the circumstances that will trigger a reassessment should be obvious to the entity.

The IFRS 10 analysis also provides a number of examples illustrating where the Standard may have an effect, grouped into examples where diversity in practice exists under IAS 27 and SIC-12 or where the control assessment relied on 'bright lines'. The examples include control without a majority of voting rights, investees previously within the scope of SIC-12, agency relationships and potential voting rights.

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