PFRS #10 Consolidated Financial Statements

• consolidated financial statements is the financial statements of a group in which the assets, liabilities, equity, income, expenses, and cash flows of the parent and its subsidiaries are presented as those of a single economic entity
• group - a parent and its subsidiaries
• parent - an entity that controls one or more entities
• subsidiary - an entity that is controlled by another entity
• control is the basis for consolidation
• control exists if the investor has all of the following:

  1. power over the investee
  2. exposure, or rights, to "variable returns" from the investee
  3. ability to affect returns through use of power
• an investor has power over an investee when the investor has existing rights that give it the current ability to direct the investee's relevant activities
• relevant activities activities of the investee that significantly affect the investee's returns
• a parent company may have significant influence over its subsidiaries without having majority ownership
• administrative rights- administrative tasks only
• unilateral rights if two or more investors individually or unilaterally have the ability to direct different relevant activities the investor that has the current ability to direct the activities that most significantly affect the returns of the investee has power over the investee
• protective rights are rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate
• consolidation begins from the date the investor obtains control of the investee and ceases when the investor loses control of the investee
• control of an investee- an investor controls an investee when the investor is exposed, or has rights, to variable returns from the its involvement with the investee and has the ability to affect those returns to its power over the investee
• potential voting rights - an investor with the current ability to direct the relevant activities has power even if its rights o direct have yet to be exercised
• removal rights - are rights to deprive the decision maker of exposition making authority