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Consolidation


Introduction

In June 2003, the IASB decided to include on the agenda a project on Consolidation, with the aim to issue a single principle on the subject in place of the requirements of IAS 27 Consolidated and Separate financial statements and SIC-12 Consolidation – Special purpose entities (SPE).
The project has been accelerated following the financial crisis and the recommendations of the Financial Stability Forum when the IASB decided to proceed directly with the publication of an exposure draft.
In December 2008, in fact, it published ED 10 Consolidation, in consultation until 20 March 2009.
Therefore, the Consolidation project is divided into two parts:
1. Consolidation and disclosure,
2. Investment entities. Following the numerous requests received from those who commented on ED 10 to allow investment entities to be exempted from consolidated equity investments in controlled entities, differently from what the IAS 27 requires and ED 10 proposes, the IASB decided in February 2010 to undertake a specific project in this regard, separate from the main project due to the different timing.


Objective
The project aims:
— to revise the definition of control and its implementation guidance so that all entities should apply the same control model, and
— to improve disclosure on consolidated and unconsolidated entities.


Summary
The Staff Draft recently published by the Board confirms its objective to include in a single principle the two consolidation criteria in IAS 27 (more focused on control) and in SIC 12 (more oriented on risks and rewards), and then provide more comprehensive guidelines to determine under what circumstances an SPE or an entity that does not hold a majority of voting rights (or potential voting rights) should be consolidated or not.
According to the Staff Draft, control exists when it is demonstrated that the investor has the power to decide on the business activity of entity invested in (investee), and the investor is exposed to the variability of returns of the same entity and then has the ability to influence its returns.


IASB work plan
On 12 May 2011, the IASB issued IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities.
Regarding the Investment Entities project, in August the IASB published the ED Investment Entities, open for public comment until 5 January 2012.


To summarize, the following table shows for each part, the timing and documentation produced by the IASB so far

Part

Current Status

Documents

 1. Consolidation and disclosure

Completed

 – ED 10 Consolidation (December 2008)
 – IFRS 10 Consolidation (May 2011)
 – IFRS 12 Disclosure of Interests in other entities (May 2011)

 2. Investment entities

In progress

 – ED Investment Entities (August 2011)


For more information, please refer to the IASB website.





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