Section 9 – 9.4 Subsidiaries Excluded from Consolidation

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Section 9 – Consolidated and Separate Financial Statements

9.1 Scope

9.2 Requirement to present consolidated financial statements

9.2.1 Extract from FRS102: Section 9.2-9.3

9.2.2 OmniPro comment

9.2.2.1 No exception on the basis of activities being dissimilar or causing undue cost of effort

9.3 Definition of a subsidiary

9.3.1. Extract from FRS102: Section 9.4-9.6 and Section 9.8A

9.3.2.1 Definition of a parent

9.3.2.2 Definition of a subsidiary and control

9.3.2.2.1 Strategic, financial and operating decisions

9.3.2.2.2 Interpretation of benefits to be obtained as a result of power to control

9.3.2.2.3 Power to control even if not exercise

9.3.2.3 Potential voting rights

9.3.2.4 Less than 50% of share capital held but still have control

9.3.2.5 Greater than 50% of share capital owned but still not have control

9.3.2.6 Agreement entered into by a party with other shareholders

9.3.2.7 Shares held in bare trust

9.4 Subsidiaries excluded from consolidation

9.4.1 Extract from FRS102: Section 9.9-9.9B

9.4.2 OmniPro Comment

9.4.2.1 a) Long term restrictions

9.4.2.1.1 Accounting policy choice

9.4.2.2 b) Subsidiary held with a view to a subsequent sale

9.4.2.2.1 Accounting requirements

9.5 Special purpose entities

9.5.1 Extract from FRS102: Section 9.10-9.12

9.5.2 OmniPro comment

9.6 Consolidation procedures

9.6.1 Extract from FRS102: Section 9.13 – 9.14

9.6.2 OmniPro comment – The Subsidiary

9.6.2.1 Process of consolidation

9.6.2.3 Allocation to non-controlling interests where options are exercisable

9.7 Intragroup balances and transactions

9.7.1 Extract from FRS102: Section 9.15

9.7.2 OmniPro comment

9.7.2.1 Overview

9.7.2.2 Deferred tax

9.7.2.3 Eliminating intra group transactions 100% owned – not in inventory at year end

9.7.2.4 Eliminating intra group transactions 100% owned – in inventory at year end

9.7.2.5 Eliminating intra group transactions not 100% owned – not in inventory at year end

9.7.2.6 Eliminating intra group transactions not 100% owned – some in inventory at year end

9.7.2.7 Year-end intra-group balance

9.7.2.8 Intra-group balances – sale of fixed assets within a group

9.7.2.9 Transactions between subsidiaries not consolidated

9.7.2.10 Elimination of notional amounts on intercompany/group loans not at market rates

9.7.2.11 Elimination of Intergroup dividends

9.7.2.12 Restatement of investment property to PPE for group purposes

9.8 Uniform reporting date and reporting period

9.8.1 Extract from FRS102: Section 9.16

9.8.2 OmniPro comment

9.9 Uniform accounting policies

9.9.1 Extract from FRS102: Section 9.17

9.9.2 OmniPro comment

9.10 Acquisition and disposal of subsidiaries

9.10.1 Extract from FRS102: Section 9.18-9.19D

9.10.2 OmniPro comment

9.10.2.1 Overview

9.10.2.2 Accounting for an acquisition where control is achieved in one transaction

9.10.2.3 Accounting for an acquisition where control is achieved in stages

9.10.2.4 Acquisitions where controlling interest is increased

9.10.2.5 Disposals where controlling interest is still retained

9.10.2.6 Disposal of a subsidiary where control is lost fully

9.10.2.6.1 Control lost but less than controlling interest still held

9.10.2.6.2 Indicators that control is lost
(see further details of how control is attained and by definition how control could be lost at 9.3.2)

9.11 Non-controlling interest in subsidiaries

9.11.1 Extract from FRS102: Section 9.20-9.22

9.11.2 OmniPro comment

9.12 Transferring a business within a group

9.12.1 OmniPro comment

9.13 Intermediate payment arrangements

9.13.1 Extract from FRS102: Section 9.33-9.38

9.13.2 OmniPro comment

9.14 Individual and separate financial statements

9.14.1 Extract from FRS102: Section 9.23A-9.26A

9.14.2 OmniPro comment

9.14.2.1 Overview and accounting policy choices

9.14.2.2 Fair Value through Profit and Loss Account

9.14.2.3 Fair Value through Other Comprehensive IncomeExample 18B: Adoption of fair value through other comprehensive income on transition

9.15 Disclosures requirements

9.15.1 Disclosures in consolidated financial statements

9.15.1.1 Extract from FRS102: Section 9.23

9.15.1.2 OmniPro comment

9.15.1.2.1 Accounting Policies

9.15.1.2.1.1 Basis of consolidation

9.15.1.2.1.2 Subsidiary undertakings

9.15.1.2.1.3 Associates and joint ventures

9.15.1.2.1.4 Transactions eliminated on consolidation

9.15.1.2.1.5 Business combinations and goodwill

9.15.1.2.1.6 Goodwill

9.15.1.2.1.7 Impairment

9.15.1.2.1.8 Intangible assets

9.15.1.2.1.9 Contingent acquisition consideration

9.15.1.2.2 Notes to the Financial Statements

9.15.1.2.2.1 Business combinations.

9.15.1.2.2.2 Financial assets – Group disclosure.

9.15.1.2.2.3 Financial assets note for the parent company in the consolidated financial statements.

9.15.1.2.2.4 Contingent consideration note.

9.15.1.2.3 Consolidated Profit and Loss account and other comprehensive income sharing split between controlling and non-controlling interest.

9.15.1.2.4 Changes in Equity showing the movement on the cash flow hedge reserve in line with Section 9 and Section 12 disclosure requirements.

9.15.1.2.5 Extract from the consolidated Balance Sheet for negative goodwill and also showing non-controlling interest.

9.15.2 Disclosures in separate financial statements.

9.15.2.1 Extract from FRS102: Section 9.27.

9.15.2.2 OmniPro comment.

9.15.2.2.1 Accounting Policies.

9.15.2.2.1.1 Consolidated accounts.

9.15.2.2.1.2 Investments.

9.15.2.2.1.3 Dividend income.

9.15.2.2.1.4 Goodwill.

9.15.2.2.1.5 Intangible assets.

9.15.2.2.1.6 Contingent acquisition consideration.

9.15.2.2.2. Notes to the financial statements.

9.15.2.2.2.1 Intangible assets.

9.15.2.2.2.2 Investments.

9.15.2.2.2.3 Extract from the notes in the consolidated financial statements – negative goodwill.

9.15.2.2.3 Profit and Loss account.

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9.4 Subsidiaries excluded from consolidation

9.4.1 Extract from FRS102: Section 9.9-9.9B

9.9 A subsidiary shall be excluded from consolidation where:

(a) severe long-term restrictions substantially hinder the exercise of the rights of the parent over the assets or management of the subsidiary; or

(b) the interest in the subsidiary is held exclusively with a view to subsequent resale; and the subsidiary has not previously been consolidated in the consolidated financial statements prepared in accordance with this FRS.

9.9A A subsidiary excluded from consolidation on the grounds set out in paragraph 9.9(a) shall be measured using an accounting policy selected by the parent in accordance with paragraph 9.26, except where the parent still exercises a significant influence over the subsidiary. If this is the case, the parent should treat the subsidiary as an associate using the equity method set out in paragraph 14.8.

9.9B A subsidiary excluded from consolidation on the grounds set out in paragraph 9.9(b) which is:

(a) held as part of an investment portfolio shall be measured at fair value with changes in fair value recognised in profit or loss; or

(b) not held as part of an investment portfolio shall be measured using an accounting policy selected by the parent in accordance with paragraph 9.26

9.4.2 OmniPro Comment

Section 9.9 of FRS 102 only provides two exclusions from the requirement to include all subsidiaries in the consolidated financial statements. These are:

9.4.2.1 a) Long term restrictions

A Subsidiary must be excluded due to long term restrictions being applied which hinder the rights of the parent over the management and assets of the subsidiary. Examples where restrictions apply would include:

where the company is placed into insolvency or administration
veto powers held by a third party e.g. a lender due to covenant breaches
severe restriction on future distributions/remittances

9.4.2.1.1 Accounting policy choice

Where such a subsidiary is excluded under Section 9.9A of FRS 102 it should be included in the consolidated financial statements assuming significant influence is not held and carried at either:

cost less impairment
fair value through the profit and loss account
fair value through other comprehensive income

NOTE where the fair value through the profit and loss is applied the consolidated financial statements should disclose the fact that a true and fair view override was required.

Where significant influence is held under Section 9.9A of FRS 102 it should be accounted for under the equity method i.e. treated as an associate, the carrying amount under the equity method on the date control is lost is the value of the net assets and goodwill attributable to the investment on the date the restriction is applied.

9.4.2.2 b) Subsidiary held with a view to a subsequent sale

A subsidiary held with a view to a subsequent sale is defined in Appendix I of FRS 102 as an interest:

‘for which a purchaser has been identified or is being sought, which is reasonably expected to be disposed of within approximately one year of its date of acquisition; or
that was acquired as a result of the enforcement of a security, unless the interest has become part of the continuing activities of the group or the holder acts as it intends the interest to become so; or
which is held as part of an investment portfolio’.

In order for a subsidiary to be classified as held exclusively for future sale it must not have been consolidated in the past. If it was, it cannot be excluded.

9.4.2.2.1 Accounting requirements

If such a subsidiary is held as part of a trading portfolio, it must be measured at Fair Value with changes in Fair Value recognised in the Profit and Loss account (Section 9.9 (B)(a) FRS 102). If such a subsidiary is not held as part of a trading portfolio, then it has an accounting policy choice to carry at: