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IFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls.
[IFRS ] A parent must not only have power over an investee and exposure or rights to variable returns from its involvement with the investee, a parent must also have the ability to use its power over the investee to affect its returns from its involvement with the investee. When assessing whether an investor controls an investee an investor with decision-making rights determines whether it acts as principal or as an agent of other parties.
A number of factors are considered in making this assessment.
[IFRS 10: B88] The parent and subsidiaries are required to have the same reporting dates, or consolidation based on additional financial information prepared by subsidiary, unless impracticable.
Where impracticable, the most recent financial statements of the subsidiary are used, adjusted for the effects of significant transactions or events between the reporting dates of the subsidiary and consolidated financial statements.
An investor determines whether it is a parent by assessing whether it controls one or more investees.
[IFRS 10:5-6; IFRS 10:8] An investor controls an investee if and only if the investor has all of the following elements: [IFRS 10:7] Power arises from rights. Such returns must have the potential to vary as a result of the investee's performance and can be positive, negative, or both.
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[Note: The investment entity consolidation exemption was introduced by Investment Entities, issued on 31 October 2012 and effective for annual periods beginning on or after 1 January 2014.] IFRS 10 contains special accounting requirements for investment entities.
Where an entity meets the definition of an 'investment entity' (see above), it does not consolidate its subsidiaries, or apply IFRS 3 Business Combinations when it obtains control of another entity.
[IFRS ] An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design.