IAS 27 applies to the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent. It also applies to accounting for investments in subsidiaries, jointly controlled entities and associates in the separate financial statements of a parent.

Summary of IAS 27

A parent presents consolidated financial statements in which it consolidates its investment in subsidiaries (those entities that it controls), unless certain conditions are met allowing it not to prepare consolidated financial statements. The consolidated financial statements are prepared using uniform accounting policies. The reporting date of the parent and its subsidiaries shall not be more than 3 months apart.

When separate financial statements are prepared, investment in subsidiaries, jointly controlled entities and associates should be accounted for either at cost or in accordance with IAS 39. The same accounting should be applied for each category of investments.

IAS 27 specifies disclosures to be made in consolidated and separate financial statements.

IAS 28 applies in accounting for investments in associates, except those held by:

• Venture capital organisations, or

• Mutual funds, unit trusts and similar entities including investment-linked insurance funds

that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trading and accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

Summary of IAS 28

An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in financial and operating policy decisions of the investee but is not control or joint control over those policies. Such influence is presumed to exist if the investor owns 20 per cent or more of the voting power of the investee. An investment in an associate is accounted for using the equity method. The equity method is not used when:

• The investment is classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations; or

• The investor is itself a subsidiary, its owners do not object to the equity method not being applied, and its debt and equity securities are not publicly traded. In this case the investor’s parent must present consolidated financial statements that comply with IFRSs.

The investor’s financial statements are prepared using uniform accounting policies for like transactions and events in similar circumstances. Any difference between the reporting date of the investor and its associate must not be more than 3 months.

An investor discontinues the equity method from the date that it ceases to have significant influence over the associate. From that date it accounts for the investment in accordance with IAS 39, provided the associate does not become a subsidiary or a joint venture as defined in IAS 31.

IAS 28 specifies disclosures to be made in the investor’s financial statements about associates.