Critical conclusions on IFRS 10 Consolidated Financial Statements

The consolidated financial statements in IFRS 10 are intended to establish principles for audit firms to prepare and present consolidated statements when an entity in Dubai and the UAE controls another organization.

Specifically, IFRS 10:

  • Requires a parent entity in Dubai and the UAE that controls multiple organizations to report consolidated financial statements.
  • It establishes the principle of control as a pillar and establishes the recognition if the investors control the investee.
  • It highlights the accounting needs for the preparation of consolidated financial statements.
  • Describe an investment entity and highlight an exception to the consolidation of specific subsidiaries of an investment entity in Dubai and the UAE.

Objectives of IFRS 10:

Control is the basis of consolidation. Precisely speaking, the basic rule states that:

  • If an investor does not control his investee, he cannot consolidate.
  • If an investor controls your investee, then you must consolidate.

understand control

Investors control the investee in various ways:

  • It is entitled to or is exposed to variable returns from its association with the investee.
  • May influence yields.
  • Through its power over investees.

evaluation control

These three fundamentals are inherent in control: variable returns, power, and the ability to use power.

Also read: Audit of profit and loss statements in the United Arab Emirates: why it is necessary

The power gives a Dubai entity the ability to direct various activities. Here’s a breakdown:

  • Rights must be considered, not minor.
  • The power must be in force and be exercised in the current period.
  • The associated activities must be massive and linked to the significant activities of the investee.

When assessing whether an investor has power over the investee, audit services on behalf of Dubai companies consider various factors, in line with IFRS 10.

Accounting requirements for audit firms in Dubai and UAE under IFRS 10

Consolidation procedures

In preparing consolidated financial statements, business audit experts should consider the following consolidation procedures: Combine the equity, liabilities, assets, expenses, cash flows, and expenses of the parent entity with associated subsidiaries .

Delete (Compensate)

  • The book value of the investment of the parent entity in the subsidiaries.
  • The equity of the parent entity of each subsidiary.
  • Compensation in the total of intra-group assets and liabilities, expenses and cash flow, income, equity associated with transactions between the Dubai groups of entities.

Consolidation procedures under IFRS

There are some additional rules for consolidation procedures that are highlighted in IFRS 10 on the preparation of consolidated financial statements:

  • Minority interests are represented in equity, but separate from the equity of the owners of the parent company.
  • Both the parent and the subsidiary will use the same accounting processes and policies.
  • The financial statements of the parent company and the financial statements of the subsidiary must have the same filing date.
  • Address loss of control of a subsidiary by the parent and other guidelines associated with certain circumstances.

IFRS 10 Exceptions

As we noted above, when a parent entity controls a subsidiary, that subsidiary must be consolidated. However, this is not always true. According to IFRS 10, there are some exceptions to consolidation:

If the parent entity meets all of the following conditions, it is not required to present consolidated financial statements:

  • Controls a wholly owned subsidiary or a subsidiary that owns a partial interest in another entity with the agreement of its other owners.
  • There is no public market for its debt or equity instruments.
  • To issue any instrument in a public market, it has not filed and is not in the process of filing its financial statements with any securities commission or other regulatory agency.
  • The parent company or its ultimate or intermediate parents prepare public consolidated financial statements that comply with IFRS.
  • The financial statements do not have to be consolidated when long-term employee benefit plans are presented under IAS 19 Employee Benefits.

Investment Entities

Investment Entities are entities in Dubai and the United Arab Emirates that:

  • Provides investment management services to a client or clients and obtains funds from those client or clients;
  • Investors know that the company invests funds only for capital appreciation, investment income, or both. This is your sole purpose in investing.
  • Approximately all of its investments are valued and evaluated on a fair value basis.

Under IFRS 10, the entity must determine if it is an investment entity or not. Investment entities generally have the following characteristics:

  • There are multiple investments in the company;
  • Various investors are involved;
  • Has investors who do not belong to the company;
  • Owns shares or similar interests in the company.

Investment Entities under IFRS 10

In accordance with IFRS 9 Financial Instruments, most investment entities do not need consolidated financial statements. Instead, they must measure investments in subsidiaries at fair value through profit or loss.

Are you looking for more information or assistance on the consolidation of financial statements according to IFRS 10 of leading auditing firm in Dubai? If you need to speak with our internal or external auditors, you can email or call us.

Also read: Audit Firms in Dubai Guide on Accounting for Spare Parts under IFRS

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