National Board of Accountants and Auditors

IAS 27Separate Financial Statements

ByYona Killagane

23RD AUGUST TO FRIDAY 25TH AUGUST 2017, AT TREASURY SQUARE – DODOMA

Coverage

Historical perspectiveDifferent types of investments in a companyObjective and Scope of the standardWhat are separate financial statementsWho are required to prepare separate FSInvestment entitiesGroup reorganisationDisclosure requirementsSample financial ststementsCompanies Act 2002 requirement

Historical perspectiveIn April 1989 the IASC issued IAS 27 Consolidated

Financial Statements and Accounting for Investments in Subsidiaries, which was adopted by IASB in April 2001. In December 2003 the IASB revised IAS 27 with a

new title—Consolidated and Separate Financial Statements. incorporating guidance from Interpretations:SIC-12 Consolidation—Special Purpose Entities; and SIC-33 Consolidation and Equity Method—Potential Voting Rights

and Allocation of Ownership Interests.

In January 2008, IAS 27 was amended to address the accounting for non-controlling interests and loss of control of a subsidiary as part of its business combinations.

Historical perspectiveIn May 2011, IAS 27 was amended with a modified

title—Separate Financial Statements and consolidation removed to IFRS 10. In October 2012, IAS 27 was amended by

incorporating disclosure requirements relating to Investment Entities.In August 2014, IAS 27 was amended by Equity

Method in Separate Financial Statements by allowing the use of the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

Investments in a company

Company

Subsidiary Associates Joint Venture InvestmentOwn >50% Own >20<50% Own = agreed Own <20%

Control Significant influence

Equal Control No Control

AccountingIFRS3/10

AccountingIAS 28

AccountingIFRS 9

AccountingIFRS 11

Objective & Scope

The objectiveto prescribe the accounting and disclosure requirements

for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.

ScopeTo be applied in accounting for investments in

subsidiaries, joint ventures and associates when an entity elects, or is required by local regulations, to present separate financial statements.The Standard does not mandate which entities produce

separate financial statements. It applies when an entity prepares separate financial statements

Definitions

Consolidated financial statements are 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.Separate financial statements are those presented by a

parent (i.e. an investor with control of a subsidiary) or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or in accordance with IFRS 9 Financial Instruments.Separate financial statements are those presented in addition

to consolidated financial statements or in addition to financial statements in which investments in associates or joint ventures are accounted for using the equity method.

Consolidated and separate FS

Parent FSOwn FS

Associate FSJoint venture FSSubsidiary FS

Consolidation:IFRS 3 Business combinationsIFRS 10: Consolidated FS

PARENT FS

Associate FS

Joint Venture FS

Subsidiary FS

A MUST

OPTIONAL ORBY JURISDICTYION

IAS 27

Who are required to present Separate Financial Statements

1. An entity that is required to present separate financial statements in addition to consolidated financial statements or economic entity financial statements.

2. The financial statements of an investor that does not have investments in subsidiaries but has investments in associates or joint ventures in which the investments in associates or joint ventures are required by IAS 28 to be accounted for using the equity method.

3. The entities which are exempt from preparing consolidated financial statements under IFRS 10 or economic entity financial statements under IAS 28.

4. An investment entity exempt from preparing consolidated or economic entity financial statements will only prepare separate financial statements.

Preparation of separate financial statements

Separate financial statements shall be prepared in accordance with all applicable IFRSs.Account for investments in subsidiaries, joint

ventures and associates; either:a. at cost; b. in accordance with IFRS 9; orc. using the equity method as described in IAS 28.

Apply the same accounting for each category of investments i.e. subsidiaries; joint ventures; and associates

Preparation of separate financial statements

Investments accounted for at cost or using the equity method shall be accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations when they are classified as held for sale or for distribution. The measurement of investments

accounted for in accordance with IFRS 9 is not changed when recategorised under IFRS 5 as above.

Preparation of separate financial statements (cont.)

Measurement of investments in associates or joint ventures at fair value through profit or loss as per IFRS 9 under consolidation, the same measurement basis shall apply to separate financial statements.[IAS 28 para 18]If investment entity parent under IFRS 10 para 31

measures its investment in a subsidiary at fair value through profit or loss as per IFRS 9, it shall also account for its investment in a subsidiary in the same way in its separate financial statements.

Dividends

Dividends: recognised in the separate financial statements

when right to receive the dividend is established.

be recognised in profit or loss unless equity method is elected, in which case the dividend is recognised as a reduction from the carrying amount of the investment.

Definition - investment entity

is an entity that:obtains funds from one or more investors for

the purpose of providing those investor(s) with investment management services;commits to its investor(s) that its business

purpose is to invest funds solely for returns from capital appreciation, investment income, or both; andmeasures and evaluates the performance of

substantially all of its investments on a fair value basis.

Change of status of investment entity

When Parent ceases to be an investment entityaccount for an investment in a subsidiary in accordance

with either cost; equity or IFRS 9.The date of the change of status shall be the deemed

acquisition date. The fair value of the subsidiary at the deemed acquisition

date shall represent the transferred deemed consideration when accounting for the investment under cost or equity method or IFRS 9.

Investmentcompany

Subsidiarycompanychange

Fair valuedsubsidiary

Separate FS

Cost method

Initial deemed cost = FV

Change of status of investment entity (cont.)

When an entity becomes an investment entity: account for an investment in a subsidiary at fair value

through profit or loss in accordance with IFRS 9. The difference between the previous carrying amount

and its fair value at the date of the change of status of the investor shall be recognised as a gain or loss in profit or loss. The cumulative amount of any gain or loss previously

recognised in other comprehensive income be recognised as earnings.Subsidiarycompany

Investmentcompanychange

Cost method

Measured at FVTPL

Difference to P & L

Group reorganisations …1When a parent reorganises the structure of its group by

establishing a new entity as its parent in a manner that satisfies the following criteria:

a. the new parent obtains control of the original parent by issuing equity instruments in exchange for existing equity instruments of the original parent;

b. the assets and liabilities of the new group and the original group are the same immediately before and after the reorganisation; and

c. the owners of the original parent before the reorganisation have the same absolute and relative interests in the net assets of the original group and the new group immediately before and after the reorganisation,

and the new parent accounts for its investment in the original parent at cost in its separate financial statements, the new parent shall measure cost at the carrying amount of its share of the equity items shown in the separate financial statements of the original parent at the date of the reorganisation.

An entity that is not a parent might establish a new entity as its parent in a manner that satisfies the three criteria. The requirements apply equally to such reorganisations.

Case 2

Case 1

Group reorganisations

Previous parent

Associatesjoint venture

Subsidiarycompany

Current parent

Subsidiary 3Subsidiary 1

Subsidiary 2

Current parent

intermediary parent 1 (new)

current parent

Intermediary parent 2

Subsidiary 3Subsidiary 2Subsidiary 1

original

After

Case 1

Case 2

ACCOUNT AT COST

Disclosures categories

Entity applies exemptions for consolidation under IFRS 10 paragraph 4.a;

An Investment entity exempted from consolidation under IFRS 10 paragraph 31

Entity prepares consolidated FS and is required to prepare separate FS

DisclosuresApply all applicable IFRSsNo consolidation election under IFRS 10.4a:

The fact that the financial statements are separate financial statements;

That the exemption from consolidation has been used; The name and principal place of business (and country of

incorporation, if different) of the entity whose consolidated financial statements that comply with IFRS have been produced for public use; and

The address where those consolidated financial statements are obtainable.

A list of significant investments in subsidiaries, joint ventures and associates, including: the name of those investees. the principal place of business (and country of incorporation, if different) of

those investees. its proportion of the ownership interest (and its proportion of the voting

rights, if different) held in those investees.A description of the method used to account for the investments

above.

Disclosures: Investment Entity Exempted from consolidation

disclose the fact that only separate FS are prepared. Make disclosures relating to investment entities

required by IFRS 12 Disclosure of Interests in Other Entities.

the subsidiary's name; the principal place of business; the proportion of ownership and voting interest. If an investment entity is the parent of another investment entity,

the parent shall also provide the disclosures above including, in the financial statements of the parent and subsidiaries.

the nature and extent of any significant restrictions.Any current commitments or intentions to provide financial or

other support.Any support provided to subsidiaries and among subsidiaries

indicating the type and amount of support provided to each unconsolidated subsidiary; and the reasons for providing the support.

Terms of any contractual arrangements. Details and reasons of financial or other support provided during

the year having no prior commitments.

Disclosureswith consolidated FS

The fact that the statements are separate financial statements and the reasons why those statements are prepared if not required by law.A list of significant investments in subsidiaries,

joint ventures and associates, indicating:the name of those investees.the principal place of business of those investees.its proportion of the ownership and voting interest.

A description of the method used to account for the investments above.

Tanzania Legal requirementCompanies Act 2002

Companies registered under the Act it is mandatory to prepare individual accounts.Compliance with IAS 27 is a must.

Conclusion

In Tanzania, companies Act 2002 requires the preparation separate financial statements.Accountants can thus not avoid the requirements

under IAS 27Consolidated FS along with separate FS provides

better understanding of the performance of the group as opposed to simply producing group accounts alone.