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Operating, investing and financing activities
- To help analysts assess how different types of activity affect a company’s financial position, cash flows are classified by: operating, investing and financing activities.
www.ifrs.org/content/dam/ifrs/resources-for/investors/the-essentials/the-essentials-december-2014.pdf
In September 2014 IFRS 10 was amended by Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28), which addressed the conflicting accounting requirements for the sale or contribution of assets to a joint venture or associate.
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- Control
- Power
- Exposure, Or Rights, to Variable Returns
- Link Between Power and Returns
- Consolidated Financial Statements
- Non-Controlling Interest
- Loss of Control
- Scope of IFRS 10
- Disclosure
According to IFRS 10.6-8, an investor controls an investee (another entity) if it has: 1. Powerover the investee, 2. Exposure, or rights, to variable returns from its involvement with the investee, and 3. The ability to use its power over the investee to affect the amount of the investor’s returns (principal vs agentconsideration). The presence of ...
Power arises from rights that give the investor current ability to direct relevant activities of an investee. Power typically comes from voting rights attached to shares, but it can also originate from other sources, such as contractual arrangements (IFRS 10.10-13). This is particularly relevant for entities where key decision-making is predetermin...
An investor is exposed, or possesses rights to, variable returns from their involvement with an investee when their returns have the potential to fluctuate based on the investee’s performance (IFRS 10.15). While only one investor can control an investee, it’s possible for other parties, such as non-controlling interest holders, to benefit from the ...
A parent company must be able to use its power to influence the returns from an investee. Entities acting as agents do not control an investee (IFRS 10.17-18). However, if another party delegates decision-making rights to an agent, it is the investor with these rights who maintains control. Essentially, decision-making rights given to an agent are ...
Consolidated financial statements of a group should be prepared applying uniform accounting policies (IFRS 10.19,B86-B87). Each parent entity is required to prepare consolidated financial statements unless exemptionsoutlined in IFRS 10 are applicable. Consolidation procedures are typically executed via specialised software wherein subsidiaries inpu...
Non-controlling interest (NCI) represents the existing interest in a subsidiary that is not directly or indirectly attributable to a parent. For instance, if a parent owns 80% of the shares in a subsidiary, the residual 20% is the NCI. This was formerly referred to as ‘minority interest’, a term still occasionally used by accounting practitioners. ...
When a parent company loses control of a subsidiary, IFRS 10.25, B98-B99 stipulate the following accounting approach: 1. Derecognise all assets (including goodwill) and liabilities of the former subsidiary at their carrying amount, 2. Derecognise the non-controlling interest, 3. Recognise the received consideration at fair value, 4. Recognise any r...
IFRS 10 is applicable to all entities acting as a parent, except for those meeting the scope exemption criteria detailed in IFRS 10.4-4B. Consequently, a parent company controlling a subgroup, which is consolidated at a higher level under IFRS and not publicly listed, is not required to prepare consolidated financial statements if all the condition...
IFRS 12is an exhaustive standard that encapsulates all disclosure requirements relating to interests in other entities. In addition, paragraphs IAS 7.39 and onwards encompass substantial disclosure requirements regarding cash flows from changes in ownership interests in subsidiaries and other businesses.
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For this purpose cash flows are classified into three key activities: operating, investing and financing. Inside this issue: • What you need to know about the cash flow statement • How do investors commonly look at free cash flow valuation? • Areas of debate about the cash flow statement • IFRS vs US GAAP What you need to know
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The statement of cash flows shall report cash flows during the period classified by operating, investing and financing activities. An entity presents its cash flows from operating, investing and financing activities in a manner which is most appropriate to its business. Classification
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IFRS 10 outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee.
OBJECTIVE. IFRS 10 establishes the principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. SCOPE. parent need not present consolidated financial statements if and only if:
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In these consolidated financial statements, the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are aggregated and presented as one set of accounts, as if they have become one single company.
