International Accounting Standard 27 Essay

This essay will travel into deepnesss of the International Accounting Standard 27 Consolidated and Separate Financial Statements the one construct of ‘Control’ between a Parent company and it Entity/Entities and what control means for each of the companies no affair their relationship. Control can impact how these Financial Statements are prepared and produced depend in how much control and whether the parent company that has the control to utilize it to alter the current fiscal statements readying into amalgamate fiscal statements.

The essay will get down off with a brief description of the IAS 27 Consolidated and Separate Financial Statements, so it will travel into the Control facet of the IAS giving a description and what this could intend for a Parent or an Entity, giving advantages and disadvantages of the control and eventually giving some illustrations of the control that is gained through investing of a company so completing up with a decision to summarize the treatment.

Summary of International Accounting Standard 27 Consolidated and Separate Financial Statements has two chief aims: A parent company assumes control in the readying and presentation of amalgamate statements of fiscal affairs as a whole group including any controlled entities, associated companies and any subordinates that have been invested in. And the accounting of the investing in the subordinates, entities and associated companies mentioned in the first aim. Control in footings of IAS 27 is the allocation of control due how much investing has been made into a company doing it a subordinate of the parent company ( investor ) .

With such an investing the parent company can utilize any benefits that come with such an investing ( Benefits will be discussed subsequently on ) . The term ‘control’ normally means covering runing activities such as fabrication, investings, selling, gross revenues, human resources, runing policies, acquisitions and disposals. When a parent straight or indirectly owns over half of the vote rights ( ordinary portions ) of an entity through subordinates it is presumed that the parent has control of that entity.

Although there are in certain fortunes where even though grounds that over half of ownership of the entity doesn’t precisely let the parent company control of the entity. When a parent company has adequate vote rights to hold control over an entity they have the power to: Assign or take some or all the current board members that run the entity, instead they can name a regulating organic structure to run in the director’s topographic point, change the current fiscal and runing policies to under a certain understanding or legislative act, casing the bulk of voting when it comes to meetings.

The definition and counsel on control is intended to place whether an entity has sole control over one or more other entities. Where two entities have joint control under a contractual understanding ( i. e. they are able to exert control by collaborating, but neither can one-sidedly exert control without the understanding of the other ) , so the agreement will non fall within the range of either IAS 27 or IFRS 3, but will fall within the range of IAS 31. ’

There are advantages of a Parent company puting in a Subsidiary for case when a company if it changes the fiscal and runing policies to that of a proven and effectual method by a set legislative act or under an understanding. Another advantage of holding consolidated financials if a metalwork’s company is ever looking for a provider to supplier metal that are required for the production, the metalwork company can put in a provider and it will go a subordinate therefore giving the metalwork’s a provider that they can invariably travel to besides giving the provider a regular beginning of concern.

With advantages come disadvantages of a Parent company puting in a subordinate one of which is the Parent investment and commanding excessively much to the point where the freshly implemented operating and fiscal policies run the subordinate into them doing a loss instead than the net income they were turning over old to the investing.

Another disadvantage of such an investing is that the subordinate ( company C ) could presently be selling to viing companies A and B before the investing, but company B doesn’t want company C selling to their rivals so company B invests in company C so that company A has to either purchase off of company C therefore giving company B a per centum of the sale additions or company A will hold to happen another provider at a more likely expensive rate.

Despite the advantages and disadvantages although the parent company has control over the voting rights they may hold a expression at the current operating and fiscal policies and merely allow these policies continue as they seem to be the most efficient manner frontward.

When a company as a group, parent and all its subordinates, will hold to fix and show all their fiscal statements together on the same day of the months. If for some ground one of the subordinates can non do the group presentation day of the month they will hold to bring forth these statements within 3 months of the group’s day of the month. In some instances achieving control in an entity can be made through 2 minutess.

There are a few ways this can go on, the investing in an plus under the IAS 39: Recognition and Measurement where a parent company owns an plus giving them about 15 % ( conjectural figure ) for a separate entity so the parent to-be company so decides to put in the company at a ulterior day of the month or frailty versa, in the terminal giving them over 75 % of control of the entity, through an associate under the IAS 28: Investings in Associates where the parent company has invested in an associate of the entity giving them important fraction of influence but non plenty for full control of the entity than once more at a ulterior day of the month the investing comes giving them bulk of control of the entity.

Finally there is deriving control through more than one dealing under IAS 31: Investings in Associates where the parent company has already invested in company B for about 30 % , company B is presently in association with company A and with the parent company holding already invested 30 % into one of the companies of the association they will hold either a inactive or important interest in the association as a whole, if the parent company so invests in company for 50 % of control they would increase their interest in the association to a full control interest. To reason the critical treatment of International Accounting Standard 27: Consolidated and Separate Financial Statements. We started to look into IAS 27 and got a brief description and sum-up of the Standard itself to gt a frim foundation of the facet as a whole before traveling into deepness about one fraction of the Standard.

Then we looked into what control is before we looked into the construct of control within IAS 27. I so gave an illustration of deriving control through investing of a parent to a subordinate. Then briefly traveling on to advantages and disadvantages of a parent company utilizing their control through voting rights to set the current fiscal and runing policies that were presently in topographic point in the subordinate. Then we go into presentation times of the fiscal statements that are required on an one-year footing. Then eventually we go into the different methods of how a parent company can achieve command through vote right through 2 minutess.

Using all this information we can corroborate that the construct of control through IAS 27 is cardinal to both a parent and an entities hereafter as a concern whether the concern as whole will continually run for old ages to come or the maltreatment of such control can set the subordinate and even in some instances the parent into debt. As mentioned there are many grounds to why a parent company may desire to put in a company. Through the information given my sentiment has to be that the puting company will hold to measure exhaustively their program and the subordinates program before doing such an investing devising certain both companies will thrive from working with each other and remain to work post-investment.