Consolidated Financial Statements - IFAC

IFAC Board

Exposure Draft

October 2013 Comments due: February 28, 2014

Proposed International Public Sector Accounting Standard

Consolidated Financial Statements

This Exposure Draft 49, Consolidated Financial Statements, was developed and approved by the International Public Sector Accounting Standards Board (IPSASB). The IPSASB sets International Public Sector Accounting Standards (IPSASs) for use by public sector entities, including national, regional, and local governments, and related governmental agencies. A key part of the IPSASB's strategy is to converge the IPSASs, to the extent appropriate, with the IFRSs issued by the IASB. The objective of the IPSASB is to serve the public interest by setting high-quality public sector accounting standards and by facilitating the adoption and implementation of these, thereby enhancing the quality and consistency of practice throughout the world and strengthening transparency and accountability of public sector finances.

The structures and processes that support the operations of the IPSASB are facilitated by the International Federation of Accountants (IFAC). Copyright ? October 2013 by the International Federation of Accountants (IFAC). For copyright, trademark, and permissions information, please see page 93.

REQUEST FOR COMMENTS

This Exposure Draft 49, Consolidated Financial Statements, was developed and approved by the International Public Sector Accounting Standards Board (IPSASB). The proposals in this Exposure Draft may be modified in light of comments received before being issued in final form. Comments are requested by February 28, 2014. Respondents are asked to submit their comments electronically through the IPSASB website, using the "Submit a Comment" link. Please submit comments in both a PDF and Word file. Also, please note that first-time users must register to use this feature. All comments will be considered a matter of public record and will ultimately be posted on the website. Although IPSASB prefers that comments are submitted via its website, comments can also be sent to Stephenie Fox, IPSASB Technical Director at stepheniefox@. This publication may be downloaded free of charge from the IPSASB website: . The approved text is published in the English language. Objective of the Exposure Draft The objective of this Exposure Draft is to propose principles for the presentation and preparation of consolidated financial statements when a public sector entity controls one or more other entities. Guide for Respondents The IPSASB would welcome comments on all of the matters discussed in this Exposure Draft. Comments are most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative wording.

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The Specific Matters for Comment requested for the Exposure Draft are provided below. Specific Matter for Comment 1: Do you agree with the proposed definition of control? If not, how would you change the definition? Specific Matter for Comment 2: Do you agree that a controlling entity should consolidate all controlled entities (except in the circumstances proposed in this Exposure Draft)? If you consider that certain categories of entities should not be consolidated, please justify your proposal having regard to user needs and indicate your preferred accounting treatment for any such controlled entities. If you have any comments about temporarily controlled entities, please respond to Specific Matter for Comment 3. Specific Matter for Comment 3: Do you agree with the proposal to withdraw the exemption in IPSAS 6, Consolidated and Separate Financial Statements (December 2006) for temporarily controlled entities? If you agree with the withdrawal of the exemption please give reasons. If you disagree with the withdrawal of the exemption please indicate any modifications that you would propose to the exemption in IPSAS 6 (December 2006). Specific Matter for Comment 4: Do you agree that a controlling entity that meets the definition of an investment entity should be required to account for its investments at fair value through surplus or deficit? Specific Matter for Comment 5: Do you agree that a controlling entity, that is not itself an investment entity, but which controls an investment entity should be required to present consolidated financial statements in which it (i) measures the investments of the controlled investment entity at fair value through surplus or deficit in accordance with IPSAS 29, Financial Instruments: Recognition and Measurement, and (ii) consolidates the other assets and liabilities and revenue and expenses of the controlled investment entity in accordance with this Standard? Do you agree that the proposed approach is appropriate and practicable? If not, what approach do you consider would be more appropriate and practicable? Specific Matter for Comment 6: The IPSASB has aligned the principles in this Standard with the Government Finance Statistics Manual 2013 (GFSM 2013) where feasible. Can you identify any further opportunities for alignment?

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IPSAS XX (ED 49)--CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

Objective ............................................................................................................................... Scope ....................................................................................................................................

Public Sector Combinations ........................................................................................... Presentation of Consolidated Financial Statements....................................................... Government Business Enterprises ................................................................................. Definitions.............................................................................................................................. Binding Arrangement ...................................................................................................... Economic Entity .............................................................................................................. Control (see paragraphs AG2?AG86)................................................................................... Power .............................................................................................................................. Benefits ........................................................................................................................... Link between Power and Benefits .................................................................................. Accounting Requirements ..................................................................................................... Consolidation Procedures .............................................................................................. Uniform Accounting Policies........................................................................................... Measurement .................................................................................................................. Potential Voting Rights ................................................................................................... Reporting Dates.............................................................................................................. Non-Controlling Interests ................................................................................................ Loss of Control................................................................................................................ Investment Entities: Fair Value Requirement........................................................................ Determining Whether an Entity is an Investment Entity ................................................. Judgments and Assumptions ......................................................................................... Accounting for a Change in Investment Entity Status .................................................... Transitional Provisions .......................................................................................................... References to the "Immediately Preceding Period"........................................................ Effective Date ........................................................................................................................ Withdrawal of IPSAS 6 (December 2006)............................................................................. Application Guidance ............................................................................................................

Paragraph 1?2 3?9 4 5?6 7?9

10?13 11

12?13 10 10

26?30 31?33 34?51

36 37 38 39?41 42 43?47 48?51 52?60 55?56 57?58 59?60 61?76 75?76 77?78 79 AG1?AG105

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Amendments to Other IPSASs Basis for Conclusions Alternative View of Mr. Bob Dacey Implementation Guidance Illustrative Examples Comparison with IFRS 10 International Public Sector Standard XX (ED 49), Consolidated Financial Statements, is set out in paragraphs 1-79. All the paragraphs have equal authority. IPSAS XX (ED 49) should be read in the context of its objective, the Basis for Conclusions, and the Preface to International Public Sector Accounting Standards. IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors, provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

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ED 49, CONSOLIDATED FINANCIAL STATEMENTS

Objective

1. The objective of this Standard is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

2. To meet the objective in paragraph 1, this Standard: (a) Requires an entity (the controlling entity) that controls one or more other entities (controlled entities) to present consolidated financial statements; (b) Defines the principle of control, and establishes control as the basis for consolidation; (c) Sets out how to apply the principle of control to identify whether an entity controls another entity and therefore must consolidate that entity; (d) Sets out the accounting requirements for the preparation of consolidated financial statements; and (e) Defines an investment entity and sets out an exception to consolidating particular controlled entities of an investment entity.

Scope

3. An entity that prepares and presents financial statements under the accrual basis of accounting shall apply this Standard in the preparation and presentation of consolidated financial statements for the economic entity.

Public Sector Combinations 4. This Standard does not deal with the accounting requirements for public sector combinations and

their effect on consolidation, including goodwill arising on a public sector combination (see the relevant international or national accounting standard dealing with public sector combinations).

Presentation of Consolidated Financial Statements 5. An entity that is a controlling entity shall present consolidated financial statements. This

Standard applies to all entities, except as follows: (a) A controlling entity need not present consolidated financial statements if it meets all

the following conditions: (i) It is itself a controlled entity and the information needs of users are met by its

controlling entity's consolidated financial statements, and, in the case of a partially owned controlled entity, all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the entity not presenting consolidated financial statements; (ii) Its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); (iii) It did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; and

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ED 49, CONSOLIDATED FINANCIAL STATEMENTS

(iv) Its ultimate or any intermediate controlling entity produces consolidated financial statements that are available for public use and comply with International Public Sector Accounting Standards (IPSASs).

(b) Post-employment benefit plans or other long-term employee benefit plans to which IPSAS 25, Employee Benefits, applies.

(c) An investment entity reporting in accordance with IPSASs need not present consolidated financial statements if it is required, in accordance with paragraph 52 of this Standard, to measure all of its controlled entities at fair value through surplus or deficit.

6. A controlled entity is not excluded from consolidation because its activities are dissimilar to those of the other entities within the economic entity, for example, the consolidation of Government Business Enterprises (GBEs) with entities in the budget sector. Relevant information is provided by consolidating such controlled entities and disclosing additional information in the consolidated financial statements about the different activities of controlled entities. For example, the disclosures required by IPSAS 18, Segment Reporting, help to explain the significance of different activities within the economic entity.

Government Business Enterprises

7. This Standard applies to all public sector entities other than GBEs.

8. The Preface to International Public Sector Accounting Standards issued by the IPSASB explains that GBEs apply IFRSs issued by the IASB. GBEs are defined in IPSAS 1, Presentation of Financial Statements.

9. Although GBEs are not required to comply with this Standard in their own financial statements, the provisions of this Standard will apply where a public sector entity that is not a GBE has one or more controlled entities that are GBEs. In these circumstances, this Standard shall be applied in consolidating GBEs into the financial statements of the economic entity.

Definitions

10. The following terms are used in this Standard with the meanings specified:

Benefits are the advantages an entity obtains from its involvement with other entities. Benefits may be financial or non-financial. Benefits can have positive or negative aspects.

Binding arrangement: For the purposes of this Standard, a binding arrangement is an arrangement that confers enforceable rights and obligations on the parties to it as if it were in the form of a contract. It includes rights from contracts or other legal rights.

Consolidated financial statements are the financial statements of an economic entity in which the assets, liabilities, net assets/equity, revenue, expenses and cash flows of the controlling entity and its controlled entities are presented as those of a single economic entity.

Control: An entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature and amount of those benefits through its power over the other entity.

A controlled entity is an entity that is controlled by another entity.

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