Consolidated Financial Statements

HKFRS 10

Revised January 2017September 2022

Hong Kong Financial Reporting Standard 10

Consolidated Financial

Statements

CONSOLIDATED FINANCIAL STATEMENTS

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HKFRS 10 (2022)

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

INTRODUCTION

HONG KONG FINANCIAL REPORTING STANDARD 10

CONSOLIDATED FINANCIAL STATEMENTS

OBJECTIVE

Meeting the objective

SCOPE

CONTROL

Power

Returns

Link between power and returns

ACCOUNTING REQUIREMENTS

Non-controlling interests

Loss of control

DETERMINING WHETHER AN ENTITY IS AN INVESTMENT ENTITY

INVESTMENT ENTITIES: EXCEPTION TO CONSOLIDATION

APPENDICES

A Defined terms

B Application guidance

C Effective date and transition

D Amendments to other HKFRSs

BASIS FOR CONCLUSIONS

APPENDICES TO THE BASIS FOR CONCLUSIONS

Dissenting opinions

Amendments to Basis for Conclusions on other IFRSs

ILLUSTRATIVE EXAMPLES

AMENDMENTS TO THE GUIDANCE ON OTHER IFRSS

from paragraph

IN1

1

2

4

5

10

15

17

19

22

25

27

31

Hong Kong Financial Reporting Standard 10 Consolidated Financial Statements (HKFRS 10) is

set out in paragraphs 1¨C33 and Appendices A¨CD. All the paragraphs have equal authority.

Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics

the first time they appear in the Standard. Definitions of other terms are given in the Glossary

for Hong Kong Financial Reporting Standards. HKFRS 10 should be read in the context of its

objective and the Basis for Conclusions, the Preface to Hong Kong Financial Reporting

Standards and the Conceptual Framework for Financial Reporting. HKAS 8 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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Introduction

IN1

HKFRS 10 Consolidated Financial Statements establishes principles for the

presentation and preparation of consolidated financial statements when an entity

controls one or more other entities.

IN2

The HKFRS supersedes HKAS 27 (Revised) Consolidated and Separate Financial

Statements and HK(SIC)-Int 12 Consolidation¡ªSpecial Purpose Entities and is effective

for annual periods beginning on or after 1 January 2013. Earlier application is permitted.

Reasons for issuing the HKFRS

IN3

The International Accounting Standards Board added a project on consolidation to its

agenda to deal with divergence in practice in applying IAS 27 and SIC-12 (that is, the

international equivalent of HKAS 27 and HK(SIC)-Int 12). For example, entities varied

in their application of the control concept in circumstances in which a reporting entity

controls another entity but holds less than a majority of the voting rights of the entity,

and in circumstances involving agency relationships.

IN4

In addition, a perceived conflict of emphasis between IAS 27 and SIC-12 had led to

inconsistent application of the concept of control. IAS 27 required the consolidation

of entities that are controlled by a reporting entity, and it defined control as the power

to govern the financial and operating policies of an entity so as to obtain benefits from

its activities. SIC-12, which interpreted the requirements of IAS 27 in the context of

special purpose entities, placed greater emphasis on risks and rewards.

IN5

The global financial crisis that started in 2007 highlighted the lack of transparency about

the risks to which investors were exposed from their involvement with ¡®off balance sheet

vehicles¡¯ (such as securitisation vehicles), including those that they had set up or

sponsored. As a result, the G20 leaders, the Financial Stability Board and others

asked the IASB to review the accounting and disclosure requirements for such ¡®off

balance sheet vehicles¡¯.

Main features of the HKFRS

IN6

The HKFRS requires an entity that is a parent to present consolidated financial

statements. A limited exemption is available to some entities.

General requirements

IN7

The HKFRS defines the principle of control and establishes control as the basis for

determining which entities are consolidated in the consolidated financial statements.

The HKFRS also sets out the accounting requirements for the preparation of

consolidated financial statements.

IN7A

Investment Entities (Amendments to HKFRS 10, HKFRS 12 and HKAS 27), issued in

December 2012, introduced an exception to the principle that all subsidiaries shall be

consolidated. The amendments define an investment entity and require a parent that

is an investment entity to measure its investments in particular subsidiaries at fair value

through profit or loss in accordance with HKFRS 9 Financial Instruments? instead of

consolidating those subsidiaries in its consolidated and separate financial statements.

In addition, the amendments introduce new disclosure requirements related to

investment entities in HKFRS 12 Disclosure of Interests in Other Entities and HKAS 27

Separate Financial Statements.

?

Paragraph C7 of HKFRS 10 Consolidated Financial Statements states ¡°If an entity applies this HKFRS but does

not yet apply HKFRS 9, any reference in this HKFRS to HKFRS 9 shall be read as a reference to HKAS 39

Financial Instruments: Recognition and Measurement.¡±

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IN8

An investor controls an investee when it is exposed, or has rights, to variable returns

from its involvement with the investee and has the ability to affect those returns through

its power over the investee. Thus, the principle of control sets out the following three

elements of control:

(a) power over the investee;

(b) exposure, or rights, to variable returns from involvement with the investee; and

(c) the ability to use power over the investee to affect the amount of the investor¡¯s

returns.

IN9

The HKFRS sets out requirements on how to apply the control principle:

(a) in circumstances when voting rights or similar rights give an investor power,

including situations where the investor holds less than a majority of voting rights

and in circumstances involving potential voting rights.

(b) in circumstances when an investee is designed so that voting rights are not the

dominant factor in deciding who controls the investee, such as when any voting

rights relate to administrative tasks only and the relevant activities are directed by

means of contractual arrangements.

(c) in circumstances involving agency relationships.

(d) in circumstances when the investor has control over specified assets of an

investee.

IN10

The HKFRS requires an investor to reassess whether it controls an investee if facts

and circumstances indicate that there are changes to one or more of the three elements

of control.

IN11

When preparing consolidated financial statements, an entity must use uniform

accounting policies for reporting like transactions and other events in similar

circumstances. Intragroup balances and transactions must be eliminated. Noncontrolling interests in subsidiaries must be presented in the consolidated statement of

financial position within equity, separately from the equity of the owners of the parent.

IN12

The disclosure requirements for interests in subsidiaries are specified in HKFRS 12.

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