The objective of IFRS 10 is to establish principles for the Presentation and
Preparation of Consolidated Financial Statements when an entity ‘controls’ one
or more other entities.
01 — Overview
What Is IFRS 10?
IFRS 10 – Consolidated Financial Statements is an International Financial Reporting Standard issued by the International Accounting Standards Board (IASB) in May 2011, effective for annual periods beginning on or after 1 January 2013. It replaced the consolidation guidance previously contained in IAS 27 (2008) and SIC-12.
The standard establishes a single, uniform control model that determines when a parent entity must include an investee in its consolidated financial statements. Before IFRS 10, different consolidation rules applied to special purpose entities versus ordinary subsidiaries, creating opportunities for off-balance-sheet structuring. IFRS 10 closed that gap.
IFRS 10 requires a parent entity to present consolidated financial statements in which it combines its financial position and results with those of all its subsidiaries-entities it controls, providing users with a complete picture of the economic group.
Why IFRS 10 Matters
The standard affects any entity that holds interests in other entities. It governs how corporate groups report to investors, lenders, and regulators-determining which entities must be consolidated, how they are consolidated, and what information must be disclosed. Understanding IFRS 10 is essential for:
✔ Who Must Apply It
- All parents preparing IFRS financial statements
- Listed companies in 140+ countries
- Entities with subsidiaries, joint ventures, or structured entities
- Investment funds (with some exceptions)
✘ What It Doesn’t Cover
- Joint arrangements (covered by IFRS 11)
- Associates (covered by IAS 28)
- Disclosures for unconsolidated entities (IFRS 12)
- Individual subsidiary financial statements
02 — Core Principle
The IFRS 10 Control Model
The cornerstone of IFRS 10 is the concept of control. An investor controls an investee when and only when it simultaneously satisfies all three of the following elements:
Power
The investor has existing rights that give it the current ability to direct the relevant activities-those that most significantly affect the investee’s returns.
Variable Returns
The investor has exposure, or rights, to variable returns from its involvement. Returns can be positive (dividends, fees) or negative (losses, guarantees).
Linkage
The investor can use its power over the investee to affect the amount of its variable returns. Power without return exposure does not constitute control.
Relevant Activities
A critical judgment under IFRS 10 is identifying the relevant activities of an investee—those that most significantly affect its economic performance. Common examples include operating and capital decisions, research and development activities, establishing pricing policies, and deciding on financing structures.
Majority vs. Minority Shareholding
While majority ownership (>50% of voting rights) typically confers control, IFRS 10 explicitly recognises that control can exist with a minority shareholding. An investor with less than 50% of the votes may still control an investee through, for example:
Agreements that give the investor power to direct relevant activities regardless of ownership percentage.
Currently exercisable options, warrants, or convertible instruments that, if exercised, would give additional voting power.
Practical ability to direct activities due to dispersed ownership among many passive shareholders with low participation rates.
Note: rights designed only to protect the holder’s interest (e.g., veto over extraordinary events) do not constitute power.
“An investor shall consider all facts and circumstances when assessing whether it controls an investee.” — IFRS 10, paragraph 7
Principal vs. Agent
IFRS 10 also addresses the distinction between a principal (who controls on its own behalf) and an agent (who acts on behalf of others). A fund manager with discretionary authority may appear to control a fund, but if it acts as an agent of investors who can remove it without cause, it does not control the fund under IFRS 10. Key indicators include: the scope of decision-making authority, the rights held by others, remuneration structure, and exposure to variable returns.
03 — Scope
Scope & Applicability of IFRS 10
IFRS 10 applies to all entities that are parents, entities with one or more subsidiaries – unless the entity qualifies for an exemption (see Section 5). The standard applies universally across industries and entity types, meaning:
Every entity controlled by a parent must be consolidated, regardless of its size, business nature, or domicile. There is no materiality threshold to exclude subsidiaries from consolidation.
Entities designed so that voting rights are not the dominant factor (e.g., securitisation vehicles, asset-backed financing structures). Control is assessed through the three-element model.
A subsidiary acquired and held exclusively for resale within 12 months is still consolidated, but may qualify for measurement at fair value less costs to sell under IFRS 5 (Non-current Assets Held for Sale).
IFRS 10 works alongside IFRS 11 (Joint Arrangements), IAS 28 (Investments in Associates and Joint Ventures), and IFRS 12 (Disclosure of Interests in Other Entities) to provide a comprehensive framework for all forms of inter-entity relationships.
04 — Procedures
Consolidation Procedures
Once control is established, IFRS 10 prescribes how to prepare the consolidated financial statements. The process involves several key steps:
Combine like items
Add together assets, liabilities, equity, income, and expenses of the parent and all subsidiaries on a line-by-line basis.
Eliminate the carrying amount
Remove the parent’s investment in each subsidiary against the subsidiary’s pre-acquisition equity, and recognise any goodwill or bargain purchase gain under IFRS 3.
Eliminate intragroup transactions
Remove all intercompany balances, transactions, income, expenses, dividends, and unrealised profits or losses arising from transactions between group entities.
Align accounting policies
Apply uniform accounting policies across the group. If a subsidiary uses different policies, adjustments must be made on consolidation.
Align reporting dates
The financial statements of all subsidiaries used for consolidation must be prepared as of the same date. If a subsidiary’s year-end differs by more than three months, it must prepare additional statements.
Present non-controlling interests (NCI)
Present NCI within equity, separately from the parent shareholders’ equity. Attribute total comprehensive income to both the parent and the NCI, even if NCI results in a deficit balance.
Non-Controlling Interests (NCI)
NCI represents the equity in a subsidiary not attributable to the parent. Under IFRS 10 (as amended by IFRS 3), entities can choose, at acquisition date and on a transaction-by-transaction basis, to measure NCI either at fair value (full goodwill method) or at the proportionate share of the acquiree’s identifiable net assets (partial goodwill method). The NCI balance changes over time as the subsidiary earns income and declares dividends.
Changes in Ownership Interest
When a parent acquires additional shares in a subsidiary already controlled, this is treated as an equity transaction-no Goodwill or gain/loss is recognised. Conversely, if a parent disposes of some shares but retains control, the difference between proceeds and the carrying amount of the NCI is recognised in equity. Control is only lost when the parent falls below the control threshold, at which point deconsolidation occurs and any gain or loss is recognised in profit or loss.
05 — Exemptions
Exemptions from Preparing Consolidated Financial Statements
IFRS 10 provides a limited exemption for intermediate parent entities. A parent need not prepare consolidated financial statements if all of the following conditions are met:
| # | Condition | Detail |
|---|---|---|
| 1 | Intermediate parent | The entity is itself a wholly-owned, or partially-owned, subsidiary and its owners do not object to non-consolidation. |
| 2 | Unlisted debt/equity | The entity’s debt or equity instruments are not publicly traded (not listed on a stock exchange or traded in an OTC market). |
| 3 | Not in registration process | The entity is not in the process of issuing instruments in public markets. |
| 4 | Higher-level IFRS consolidation | Its ultimate or intermediate parent produces consolidated financial statements in accordance with IFRS that are available for public use. |
Even if a parent qualifies for the IFRS 10 exemption, local statutory law may still require preparation of consolidated financial statements. Entities must check the requirements of their jurisdiction.
06 — Special Rules
Investment Entities Exception
A significant amendment to IFRS 10 (effective 1 January 2014) introduced a special exception for investment entities. Rather than consolidating their subsidiaries, qualifying investment entities measure their subsidiaries at fair value through profit or loss in accordance with IFRS 9.
Definition of an Investment Entity
An entity meets the definition of an investment entity if it satisfies all three of the following criteria:
It obtains funds from one or more investors for the purpose of providing them with investment management services.
Its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both.
It measures and evaluates the performance of substantially all of its investments on a fair value basis.
Typical investment entities include private equity funds, venture capital funds, and investment trusts. However, an investment entity that has a parent that is not itself an investment entity must still consolidate all subsidiaries that provide investment-related services or activities.
07 — Reporting
Key Disclosure Requirements
IFRS 10 itself contains limited disclosure requirements, the bulk of disclosure obligations for interests in other entities are addressed in IFRS 12. However, IFRS 10 requires entities to disclose the following in the consolidated financial statements:
The name, principal place of business, and proportion of ownership held by NCI for each subsidiary with material NCI, along with summarised financial information.
Details of any significant restrictions (e.g., from borrowing arrangements or regulatory requirements) on the ability to transfer cash or assets to the parent.
The effect of changes in ownership interest in subsidiaries on the equity attributable to the parent’s shareholders during the reporting period.
The gain or loss recognised, the portion of that gain or loss attributable to each component, and the line item in profit or loss where it is recognised.
08 — Comparison
IFRS 10 vs US GAAP (ASC 810)
Both IFRS 10 and US GAAP’s ASC 810 aim to achieve similar outcomes but approach consolidation differently. The key differences are:
| Topic | IFRS 10 | US GAAP (ASC 810) |
|---|---|---|
| Consolidation model | Single model: control (power + variable returns + link) | Dual model: variable interest entities (VIE) and voting interest entities |
| Structured entities | Same control model applies | VIE model with specific guidance for special purpose entities |
| Investment entities | Fair value measurement exception | No equivalent broad exception; specific rules for investment companies |
| Potential voting rights | Considered if currently exercisable | Generally not considered |
| NCI measurement | Choice: fair value or proportionate share | Always at fair value (full goodwill) |
09 — FAQ
Frequently Asked Questions
IFRS 10 replaced the consolidation guidance in IAS 27 Consolidated and Separate Financial Statements (2008) and SIC-12 Consolidation – Special Purpose Entities. IAS 27 was revised and retained only as IAS 27 (2011), which now deals solely with separate financial statements.
Yes. Under IFRS 10, ownership percentage is not the determining factor – control is. An investor with less than 50% of the voting rights can still control an entity through contractual arrangements, de facto control (dispersed other shareholders), potential voting rights, or other mechanisms. Each situation requires careful analysis of all facts and circumstances.
IFRS 10 requires that the financial statements used for consolidation be prepared as of the same reporting date as those of the parent. If the reporting dates differ, the subsidiary must prepare additional financial statements unless it is impracticable to do so. If this is impracticable and the reporting date difference is no more than three months, the subsidiary’s most recent financial statements may be used – adjusted for significant transactions in the intervening period.
IFRS 10 applies to entities that prepare financial statements in accordance with full IFRS. Entities applying IFRS for SMEs follow Section 9 of that standard, which contains its own, simplified consolidation requirements. However, many jurisdictions require certain SMEs to apply full IFRS, in which case IFRS 10 would apply.
While the term “structured entity” is used in IFRS 12 for disclosure purposes, IFRS 10 applies the same control model to all entities, including those previously called special purpose entities (SPEs). A structured entity is one designed so that voting or similar rights are not the dominant factor in deciding who controls it – typically because voting rights relate to administrative tasks only, while the relevant activities are directed through contractual arrangements.
Goodwill arising on consolidation is determined and measured in accordance with IFRS 3 Business Combinations. It is calculated as the excess of the consideration transferred (plus the fair value of any NCI and any previously held interest) over the fair value of the identifiable net assets acquired. IFRS 10 governs who to consolidate; IFRS 3 governs how to account for the business combination itself.
(Qualified) Chartered Accountant – ICAP
Master of Commerce – HEC, Pakistan
Bachelor of Accounting (Honours) – AeU, Malaysia