Consolidations and Joint Ventures Slides

Consolidations and joint ventures
Typical coverage of US GAAP
Scope
Combined financial statements
Consolidation model
Presentation of consolidated financial statements
Non-controlling interest (minority interest)
Variable interest entities (VIE) and special purpose entities
Joint ventures
Disclosures

Academic Resource Center
Page 2
Executive summary
IFRS and US GAAP are fairly well converged with respect to business consolidations. US GAAP
has two models for consolidation one for voting interest entities and one for variable-interest
entities (VIEs), while IFRS has one model for all entities.
The general consolidation model is basically the same under IFRS and US GAAP, with some
differences related to the determination of control.
In certain circumstances, both IFRS and US GAAP allow up to a three-month difference between
the reporting dates of a parent and a subsidiary. Significant events during this gap period require
adjustment under IFRS, while US GAAP only requires disclosure.
IFRS requires that accounting policies be conformed between a parent and its subsidiaries, while
differences are permitted under US GAAP.
Upon initially obtaining control, IFRS provides two options for the parent in valuing non-controlling
interests (NCI) (full fair value or fair value of identifiable assets), while under US GAAP, only the
full fair-value method is allowed.
Page 3
Executive summary
Structured entities (previously referred to as special-purpose entities (SPEs) under IFRS and
variable-interest entities under US GAAP are evaluated for consolidation. For these entities,
IFRS is focused on control while US GAAP is focused principally on determining the primary
beneficiary based on both the power to direct the activities of the VIE and the obligation to
absorb losses or the right to receive benefits.
The accounting guidance for joint ventures is similar under IFRS and US GAAP with both
requiring the use of the equity method of accounting.

Page 4
Primary pronouncements
US GAAP
ASC 810-10, Consolidations
IFRS
IFRS 10, Consolidated Financial Statements (effective

January 1, 2013, with early adoption permissible)
IAS 27 (amended), Separate Financial Statements After

amendment in 2011, the remaining guidance is limited to
accounting for subsidiaries, jointly controlled entities and
associates in separate financial statements.
IFRS 11, Joint Arrangements (effective January 1, 2013,

with early adoption permissible)
IFRS 12, Disclosure of Interests in Other Entities

(effective January 1, 2013, with early adoption
permissible)
Page 5
Progress on convergence
The Boards objectives were to develop one consolidation model that could be
applied consistently for all types of entities and produce globally comparable
results.
The IASB issued its guidance in May 2011.
IFRS 10 addresses the accounting guidance for consolidation

and addressed inconsistencies in practice between IAS 27 and
SIC 12 when an entity controls less than a majority of the voting
rights but still controls that entity.
IFRS 11 requires a party to a joint arrangement to determine the
type of joint arrangement by assessing its rights and obligations.
It also eliminates the option of proportionate consolidation as a
method of accounting for a joint arrangement.
IFRS 12 addresses users requests for improvements in the
disclosure of a reporting entity's interests in other entities.

Page 6
The FASB issued an ED on November 3, 2011, with comments due January 17, 2012, proposing to:
Not move forward with a single consolidation model but retain two distinct consolidation models, one
for voting entities and one for VIEs. The ED would continue to require an evaluation of whether a
decision maker has a variable interest in an entity. However, it would also require a separate
determination of whether an entity is using its power in a principal or an agent capacity. While US
GAAP would have two models, it would more closely align the consolidation requirements with IFRS
by:
Requiring a principal-agent determination: a reporting entitys decision maker would need to make
an principal-agent determination using three qualitative factors: (1) its compensation, (2) variability
of returns from other interests it holds and (3) the rights held by others. If it is determined that the
decision maker acts as a principal, demonstrating that it uses its power to effectively control, it
would be required to consolidate.
Substantive rights (such as kick-out or participating) held by others may affect the decision
makers ability to direct the activities that significantly impact an entitys economic performance
and may indicate the decision maker is an agent and not than a principal. This approach in the ED
would align the consideration of kick-out and participating rights to eliminate the current
inconsistency between the voting and variable interest models.
Page 7
In February 2010, ASU No. 2010-10, Consolidation (Topic 810): Amendments for certain
Investment Funds, was issued, which defers the effective date of SFAS No. 167 for certain
investment funds. The ED issued on November 3, 2011 (with comments due January 17, 2012)
would rescind this deferral.
On August 25, 2011, the IASB issued a proposal to exempt investment entities from the
consolidation requirements of IFRS 10. Instead, these entities would be required to account for
their investments at fair value through income. On October 21, 2011, the FASB issued an ED on
investment companies with comments due January 5, 2012. The proposal would change the
definition of an investment company. While the definition would be similar to IFRS, there are
some important differences, which are beyond the scope of this material. Investment companies
that have controlling interests in other investment companies would be required to consolidate
their investment company subsidiaries.
On December 20, 2011, the IASB issued an ED to clarify the transition guidance in IFRS 10. The
proposed effective date coincides with the effective date of IFRS 10. Comments on the ED are
due by March 21, 2012.
Page 8
Scope
US GAAP
IFRS
Consolidated financial statements are required

when consolidation criteria are met with some
exception, such as for employee benefit plans.

Similar
Page 9
Scope
US GAAP
US GAAP provides
certain industry
exceptions to the
application of
consolidation guidance,
which currently includes
investment companies.
IFRS
IFRS provides a limited exception for a parent to not present

consolidated financial statements if the following criteria are
met:
It is a subsidiary of another entity and the shareholders

of its parent do not object.
It does not have any debt or equity instruments traded

in public markets, and it is not in the process of
registering public debt or equity.
The immediate or ultimate parent must prepare and publish

consolidated IFRS financials.
Page 10
Combined financial statements
US GAAP
IFRS
Combined financial statements are

permitted under US GAAP if the entities
being combined are under common control
or management.
Combined financial statements are

generally not acceptable as general
purpose financial statements under IFRS,
except under rare circumstances requiring
a true and fair override.

Page 11
Consolidation model
US GAAP
IFRS
An entity is generally required to consolidate

entities it controls.
Similar
Control is presumed to exist if the parent owns

more than 50% of the voting stock.
Similar
A full elimination of revenues, expenses and asset

transfers between companies of a consolidated
group is required
Similar

Page 12
Consolidation model
Distinction of voting interest entities and VIEs
IFRS

IFRS has a single

consolidation model
applicable to all
entities, including
structured entities.
Page 13
Consolidation model
Definition of control US GAAP

Page 14
Consolidation model
Definition of control IFRS

Page 15
Consolidation model
Definition of control - IFRS

Page 16
Consolidation model
Definition of control defacto control
Defacto control can occur when there is only one significant shareholder that owns less
than 50% of the voting stock and other shareholders are disbursed and generally dont
exercise their voting rights.
IFRS considers defacto control while US GAAP does not have a similar concept.

Page 17
Consolidation model
US GAAP
IFRS
Because the IFRS definition of control is much broader than US GAAP, it is possible to reach
different conclusions as to control. However, for public companies, the SEC has a much
broader notion of control, which is similar to IFRS.
Under
the SECs definition, control exists when one entity possesses the power to direct
policies of another entity, either by ownership of voting shares, by contract or by other means.

Page 18
Consolidation considerations voting rights example

Example 1
Company A owns 49% of the voting stock of Company B. Company A has a currently exercisable
option to purchase an additional 2% of the voting stock at a cost of $50 per share. The shares are
currently valued at $30.
Would Company A consolidate Company B under

US GAAP or IFRS? Explain your answer.

Page 19
Consolidation considerations voting rights example

Example 1 solution:
US GAAP:
Company A would not have to consolidate Company B since under US GAAP potential voting
rights are not considered.
IFRS:
Company A would have to consolidate Company B under IFRS because potential voting rights
must be considered if they are exercisable, regardless of the intent or ability to exercise those
rights.

Page 20
Consolidation considerations de facto control example

Example 2
The Rich family started a local bank in 1920. The family still owns 40%
of the stock of the local bank through its Rich Holding Company (RHC).
The remaining stock is widely dispersed and these stockholders
typically do not participate in the annual meetings and exercise their
voting rights. RHC prepares it financial statements under IFRS. RHC
may need to consolidate the local bank because of the de facto control.
Is this statement true or false?

Page 21
Consolidation considerations de facto control example

Example 2 solution:
True. Under IFRS, a company should consolidate if defacto control is present. In this scenario, the
Rich Family has a majority share less than 50% but the remaining shares are widely dispersed and
these shareholders are not expected to exercise their voting rights.

Page 22
Consolidation considerations example combined financial

statements
Example 3
The Summer family owns and operates a ball bearing company and a drug store. The family is
seeking a bank loan. The bank has requested combined financial statements be prepared.
Is this presentation acceptable under US GAAP and/or IFRS?

Explain your answer.

Page 23
Consolidation considerations example combined financial

statements
Example 3 solution:
US GAAP:
Yes. Combined financial statements would be acceptable under US GAAP since the ball bearing
company and the drug store are under common control and common management.
IFRS:
No. Combined financial statements are generally not acceptable as general purpose financial
statements under IFRS, except under rare circumstances requiring a true and fair override.

Page 24
US GAAP
IFRS
In certain instances, up to a three-month difference

is allowed between the reporting dates of a parent
and a subsidiary.

Similar
Page 25

Reporting date
US GAAP
Allows up to a three-month
difference between the yearend of the parent and the
subsidiary.
IFRS
IFRS requires that the reporting date of the parent

and the subsidiary should be the same unless it is
impractical to do so. In the event that it is impractical,
IFRS permits up to a three-month lag.
Possible examples of impractical situations might

arise when a subsidiarys accounting systems are
manual or there are significant estimation
processes that require additional time to prepare
and evaluate.

Page 26

Subsidiary year-end precedes parent year-end
US GAAP
IFRS
Significant events during this time period

must be disclosed in the financial
statements of the parent, but adjustments
are not typically made to the financial
statements.
Requires adjustment of the financial

statements to reflect the impact of
significant events during this period.

Page 27

Accounting policies
US GAAP
IFRS
A parent and a subsidiary are permitted to

have different accounting policies. This is
most likely to occur when the subsidiary is
following some specialized industry guide.
The accounting policies of the subsidiary

must be the same as its parent. When
they differ, it will result in the need for topside adjustments in consolidation to
conform the subsidiarys accounting
policies to those of its parent.

Page 28
Difference in year-end example

Example 4
Low Tech, a US-based company, has a June year-end. It acquired Company B in the Amazon
Basin in August. Company B lacks a sophisticated accounting system and requires 60 to 70
days to close its books at the end of each quarter. Part of the reason for the delay in closing
the books is there are several complex accounting estimates that must be re-evaluated each
quarter. Low Tech has evaluated the accounting systems and the estimation processes, but
has not been able to find a way to expedite the quarterly closing process.
Can Low Tech consolidate Company B based on a May

year-end under either US GAAP or IFRS? Explain your
answer.
Page 29
Difference in year-end example

Example 4 solution:
US GAAP:
US GAAP allows up to three months difference between the year-end of the parent and the
subsidiary, thus a May year-end for Company B would be acceptable.
IFRS:
IFRS permits up to a three-month lag if it is impractical to prepare subsidiary statements as of the
same date. IAS 1.7 states, ... a requirement is impracticable when the entity cannot apply it after
making every reasonable effort to do so. It appears the impractical requirement has been met so a
May year-end for Company B would be acceptable.

Page 30
Significant events during a difference in year-end example

Example 5
The Parent Company has a June 30 year-end and its wholly owned
subsidiary has a May 31 year-end. Assume all the requirements for
different reporting dates have been met. On June 15, a competitor
introduces a new technology-enhanced product which makes
obsolete $10.0 million of Parent Companys inventory and $2.0 million
of the subsidiarys inventory.
What would be the impact on the consolidated June 30

financial statements under US GAAP and IFRS?
Show any required journal entries as of June 30.

Page 31

Example 5 solution:
US GAAP:
US GAAP requires significant events during this time period to be disclosed in the financial
statements of the parent. Adjustments for significant events that occur in the gap period generally
are not recorded under US GAAP. As such, only the entry to record the obsolescence of Parent
Companys inventory is necessary.
Cost of sales of parent
$10,000,000
Inventory of parent
$10,000,000

Page 32

Example 5 solution (continued):
IFRS:
IFRS requires adjustment of the financial statements to reflect the impact of significant events
during the gap period.
Cost of sales of parent
$10,000,000
Inventory of parent
Cost of sales of subsidiary
Inventory of subsidiary
$10,000,000
$2,000,000
$2,000,000

Page 33
NCI (non-controlling interest formerly minority interest)
Both US GAAP and IFRS utilize the concept of a non-controlling interest (NCI).
ASC 810-10-65-1 defines this concept as: A non-controlling interest, sometimes called a
minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly,
to a parent.
US GAAP and IFRS generally are converged as it relates to NCI.
US GAAP
IFRS
Changes in the ownership interest of a subsidiary (that

does not result in loss of control) will generally be
accounted for as an equity transaction (paid-in capital)
and will have no impact on goodwill, nor will they give
rise to a gain or loss.
Similar
Page 34
NCI (non-controlling interest)
US GAAP
IFRS
Upon a loss of control of a subsidiary, a new basis

recognition event occurs, where essentially a gain or
loss is recognized on 100% of the interest held. The
retained NCI will be remeasured to fair value and will
impact the gain or loss recognized upon disposal.
The gain or loss is calculated as follows: proceeds
plus the fair value of any retained interest plus the
carrying amount of NCI in the former subsidiary
minus the carrying amount of the former subsidiarys
net assets, plus or minus components of equity
reclassified to profit or loss.
Similar
Page 35
US GAAP
IFRS
Losses applicable to NCI are allocated to those

interests even if that results in a deficit position.
Similar
NCIs are generally classified on the balance

sheet as equity, separate from the equity of the
parent, and both present income from NCIs as
an allocation of that periods comprehensive
income.
Similar

Page 36
US GAAP
IFRS
Upon obtaining control, the acquisition of

NCI must be measured at fair value,
including goodwill.
Upon obtaining control, there is a choice

to initially measure NCI at fair value,
including goodwill, on the date of
acquisition (fair value method) or at the
fair value of the NCIs proportionate share
of the acquirees identifiable net assets as
measured at the acquisition date (without
goodwill) (proportionate method). This
choice is to be made for each business
combination.

Page 37
Consolidation considerations general example

Example 6
Under both US GAAP and IFRS, which of the following is not a
consideration related to consolidations?
Focus on control
Restrictions on NCIs being negative
Elimination of revenues and expenses between members on a

consolidated group
None of the above

Page 38
Consolidation considerations general example

Example 6 solution:
There is no restriction on NCI (minority interest) being negative under US GAAP or IFRS.

Page 39
NCI fair-value method example

Example 7
A parent owns 70% of a subsidiary. The carrying amount of the NCI of 30% is $150 million under
the full fair-value method. There are no amounts accumulated in other comprehensive income
for this subsidiary. The parent acquires an additional 10% from the NCI for $60 million in cash.
Assume the parent used the full fair-value method to initially measure the NCI upon obtaining
control of the subsidiary.
Prepare the required journal entries to record the acquisition

of the additional 10% interest in the subsidiary under
US GAAP and IFRS.

Page 40
NCI fair-value method example

Example 7 solution:
In recording the acquisition of the additional 10% interest in the subsidiary, under US GAAP and IFRS,
the carrying amount of the NCI is adjusted to reflect the change in ownership interests in the
subsidiarys net assets since the transaction does not result in a change in control. Any difference
between the amount by which the NCI is adjusted and the fair value of the consideration paid is
attributed to the parent.
The journal entry to record the additional 10% interest in the subsidiary under both US GAAP and
IFRS would be as follows:
NCI
Additional paid-in capital
Cash
(1)
$ 50,000,000 (1)
10,000,000
$60,000,000
(10%/30% = 33.33%) x $150,000,000 (rounded)

Page 41
NCI fair-value and proportionate methods example

Example 8
In the current year, Company A acquires 70% of the voting stock of
Company S for $770,000 in cash. At the date of acquisition by
Company A, the fair value the identifiable net assets of Company S
is $900,000. The fair value of the 30% NCI is $300,000. Company A
paid a $70,000 control premium to obtain control over Company S.
Show the calculations and journal entries to record Company

As investment in Company S under the fair-value method and
the proportionate method.

Page 42

Example 8 solution:
Proportionate method:
Cash
$770,000
Company As portion of the fair value of the identifiable net assets in Company S (630,000)(1)
Goodwill
$140,000
(1)
$900,000 x 70% = $630,000
Journal entry:
Fair value of identifiable net assets
Goodwill
Cash
$770,000
NCI 270,000(2)
(2)
$900,000
140,000
$900,000 x 30% = $270,000

Page 43

Fair-value method:
Cash
$770,000
Fair value of the NCI
Fair value of the identifiable net assets of Company S
Goodwill
$170,000
300,000
(900,000)
Journal entry:
Fair value of identifiable net assets
Goodwill
170,000
Cash
$770,000
$900,000
NCI 300,000
Page 44
VIEs and Structured Entities
US GAAP
IFRS
Under US GAAP, upon the initial

consolidation of an entity that is not a
business a gain or loss is recognized for
the difference between:
(1) The fair value of the consideration paid,
the fair value of any NCI and the reported
amount of any previously held interests.
Under IFRS, the cost of the entity is

allocated to identifiable assets and
liabilities (no goodwill is recorded) on the
basis of their fair value at the date of
purchase. Therefore, under IFRS, there is
no gain or loss.
(2) The VIEs net assets.
No goodwill is recognized if the VIE is not

a business.

Page 45
VIEs and Structured Entities
US GAAP
IFRS
Under US GAAP, they are focused

principally on the primary beneficiary of
the VIE (determined based on the
consideration of both the power to direct
the activities of the entity and the
obligation to absorb losses or the right to
receive benefits).
In general, the criteria used to determine

whether or not to consolidate the
structured entity are somewhat different
under US GAAP and IFRS.
Under IFRS, the consolidation criteria are

focused more on control.

Page 46
Voting control versus primary at-risk example

Example 9
A franchisor invests money in the preferred stock of a franchisee that
is in financial difficulty. The franchisee is in a deficit position and has
no other source of equity. The franchisor has no voting interest in the
franchisee.
Should the franchisor consolidate this franchisee under US

GAAP and/or IFRS? Explain your answer.

Page 47
Voting control versus primary at-risk example

Example 9 solution:
US GAAP:
The franchisee would appear to be a VIE since it has insufficient equity to carry on its operations. A
determination of whether the franchisor is the primary beneficiary (determined based on the
consideration of both the power to direct the activities of the VIE and the obligation to absorb losses
or the right to receive benefits) needs to be made. The franchisor, as an equity owner of non-voting
preferred stock is unable to make decisions about the entitys activities. There may be control of
some sort through the franchisee agreement, which will need to be evaluated. The franchisor likely
receives some benefits from the franchisee (either from selling its products or from fees).
Additionally, it could be argued the franchisor is absorbing losses because it is investing money in a
financially troubled franchisee. It would appear that there may be an argument for consolidating this
franchisee. The particular facts and circumstances would need to be carefully evaluated.
Page 48
Voting control versus primary at risk example

IFRS:
Under IFRS, whether the franchisee should be consolidated is less clear. There is no voting control
so, from that perspective, one might conclude that consolidation is not required. If there is control of
some sort through the franchisee agreement and the franchisor receives some benefits from the
franchisee (either from selling its products or from fees), there may be an argument for
consolidating this franchisee. The particular facts and circumstances would need to be carefully
evaluated.

Page 49
VIE that is not a business example

Example 10
Company
A makes an initial $100,000 cash investment in a VIE (structured entity) that is not a business. It is determined
that Company A should consolidate this VIE. At the time of the initial investment, the fair value of the VIEs assets is
$120,000 and the fair value of its liabilities is $40,000. The fair value of the NCI is $10,000.
Show
the accounting entries to record the consolidation of this VIE on Company As books under both US GAAP and IFRS.

Page 50

Example 10 solution:
US
GAAP: Company A recognizes a gain or loss for the difference between: (1) the sum of the
fair value of the consideration paid, the fair value of any NCI and the reported amount of any
previously held interests; and (2) the VIEs net assets. No goodwill is recognized if the VIE is not a
business.
VIE assets
Loss
$120,000
30,000
VIE liabilities
Cash
NCI
$ 40,000
100,000
10,000

Page 51

IFRS:
Under IFRS, the cost of the entity is allocated to identifiable assets and liabilities (no goodwill is
recorded) on the basis of their fair value at the date of purchase. Therefore, under IFRS, there is
no gain or loss.
VIE assets
$150,000
VIE liabilities
Cash
$ 50,000
100,000
Note: cash paid of $100,000/(net assets $120,000 - $40,000) = 1.25. This 1.25 x $120,000 =
$150,000 and 1.25 x $40,000 = $50,000.
Page 52
Joint arrangements
US GAAP
IFRS
The equity method of accounting for joint

arrangements is allowed.
The equity method of accounting for joint
arrangements is required

Similar
Page 53
Joint ventures
IFRS defines a joint arrangement as a contractual arrangement over which multiple parties
have joint control. Joint control is now defined per IAS 11, paragraph 7, as:
The contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require the unanimous consent of the parties sharing
control.
IFRS addresses the accounting for two categories of joint arrangements:
Joint operations
Joint ventures

Page 54
Joint ventures
Joint operation
US GAAP
IFRS
Does
not
specifically
address the
accounting for
joint operations.
A joint operation is an arrangement where the parties that have joint

control of the arrangement have rights to the assets, and obligations
for the liabilities, relating to the arrangement. A joint venture is an
arrangement where the parties have joint control of the
arrangement and have rights to the net assets of the arrangement.
An example of a joint operation would be when two companies

agree to develop a new garbage disposal unit. One company is
developing the motor and the other company is developing the
rest of the unit. Each company would pay its own costs and they
would share the revenue, based on a contractual agreement.

Page 55
Joint arrangements
Joint venture
US GAAP
IFRS
For a joint venture, a separate vehicle with an

identifiable financial structure is generally
established .
An example of a joint venture would be when

two companies set up a separate entity to
manufacture fan blades and neither company
has rights to the assets and obligations for the
liabilities of the separate entity. Each company
would contribute assets to the joint venture.

Similar
Page 56
Joint ventures
Joint venture contribution
US GAAP
IFRS
A venturer generally records its

contribution to a joint venture at cost.
There are some exceptions to this general
rule (such as when the other venturers
contribute cash or commonly considered
cash equivalents).
Under IFRS, the contribution of nonmonetary assets is recognized at fair

value, with any gains or losses being
recognized to the extent of the other
parties interest in the joint arrangement.

Page 57
Joint ventures
Method of accounting for joint arrangements
US GAAP
IFRS
Generally requires using the equity

method of accounting for jointly controlled
entities.
Joint operations: requires the parties that have

joint control to recognize their share of the
assets, liabilities, revenue and expenses.
Proportionate consolidation is only allowed

where it is industry practice (for example, in
the extractive and construction industries).
Joint ventures: requires the equity method

accounting for joint ventures.

Proportionate consolidation is not allowed.
Page 58
Joint arrangement example

Example 11
Three companies form a manufacturing joint arrangement.
Company A owns 40%, Company B owns 30% and
Company C owns 30% of the voting shares of the joint
arrangement. Income and losses of the joint arrangement
are shared equally. Any resolutions require approval of at
least 60% of the shareholders. Each company can appoint
one member to the board of directors.
Discuss how the joint arrangement should be

accounted for on each companys books under
both US GAAP and IFRS.

Page 59
Joint arrangement example

US GAAP:
Under US GAAP, the equity method of accounting for the joint venture should be used by each
company.
IFRS:
Under IFRS 11, this joint arrangement would be accounted for as a joint venture because no single
company can control this joint arrangement. Therefore, the equity method should be used by each
company to account for its interest in the joint venture.

Page 60
Joint venture example

Example 12
Company A and Company B form a joint venture. Company A contributes a subsidiary with
separable net assets with a book value of $50.0 million (fair value of $60.0 million). Company B
contributes a subsidiary with separable net assets with a book value of $70.0 million (fair value of
$90.0 million). Company A will own 40% of the joint venture and Company B will own 60% of the
joint venture.
How should this transaction be accounted for by

Company A under US GAAP and IFRS? Show all
required journal entries.

Page 61
Joint venture example

US GAAP:
No gain would be recorded and the investment in the joint venture would be recorded at the cost of the assets given up.
Investment in joint venture
$50,000,000
Net assets of subsidiary
$50,000,000
IFRS:
Under IFRS, the contribution of non-monetary assets is recorded at cost, with any difference between this cost and the fair value of its share of the assets and liabilities of the joint venture recorded as a gain or loss. Company A now owns 40%
of the joint venture with a fair value of $150.0 million ($60.0 million plus $90.0 million), worth $60 million.
Investment in joint venture
$60,000,000
Net assets of subsidiary
$50,000,000
Gain on disposal
10,000,000

Page 62
Disclosures
US GAAP
IFRS
Disclosure of the general consolidation policy

is required.
Similar
If a consolidated subsidiary has a different year-end

than the parent, disclosure is required. The reason
for the different year-end also should be disclosed .
Similar
Disclosure of any changes in the subsidiaries

being consolidated is required.
Similar

Page 63
Disclosures
US GAAP
IFRS
If a subsidiary has a year-end that

precedes the parents year-end, significant
events during this time period must be
disclosed in the financial statements of the
parent, but adjustments typically are not
made to the financial statements.
Requires adjustment of the financial statements to

reflect the impact of significant events during this
period.
IFRS 12 now requires disclosure of the judgments

made in determining whether or not another entity is
controlled. IFRS 12 also requires summarized
financial for material joint ventures and associates as
well as expanded disclosures on restrictions on their
assets and liabilities.
Provides for limited circumstances when a parent

does not have to present consolidated financial
statements, if certain criteria are met. Disclosure that
the financial statements reflect the exemption from
consolidation is required.
No similar required disclosures.

Does not have this option.

Page 64
IFRS 10 overview
Activities
Power
Returns
Activities that
significantly affect
returns
Current ability
to direct those
activities
Exposed to
variable returns
Examples:
Operating policies
Capital decisions
Appointing key
management
Management of
underlying investments
Examples:
Voting rights
Potential voting rights
Right to appoint key
management
Decision making rights
Kick out rights
Examples:
Dividends
Remuneration
Returns that are not
available to others
(scarce products, cost
reductions, synergies,
economies of scale,
proprietary knowledge)

Page 65
Ernst & Young LLP

Assurance | Tax | Transactions | Advisory
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services.
Worldwide, our 144,000 people are united by our shared values and an unwavering
commitment to quality. We make a difference by helping our people, our clients and
our wider communities achieve their potential.
Ernst & Young refers to the global organization of member firms of Ernst & Young
Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited,
a UK company limited by guarantee, does not provide services to clients. For more
information about our organization, please visit www.ey.com.
Ernst & Young LLP is a client-serving member firm of Ernst & Young Global and of
Ernst & Young Americas operating in the US.
2011 Ernst & Young Foundation (US).
All Rights Reserved.
SCORE No. MM4122C.

Page 66

Consolidations and Joint Ventures Slides

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Consolidations and Joint Ventures Slides

Uploaded by

Copyright:

Available Formats

Consolidations and joint ventures

Typical coverage of US GAAP

Combined financial statements

Presentation of consolidated financial statements

Non-controlling interest (minority interest)

Variable interest entities (VIE) and special purpose entities