AASB 10 - Consolidated Financial Statements - July 2015

What this Standard does

AASB 10 sets the rules for when a company (or any entity) must combine its financial results with those of other entities it controls — creating "consolidated financial statements" that show the group as one single economic unit.

Who it affects

• Parent companies — any entity that controls one or more other entities (called subsidiaries)
• Investment entities — a special category of entities that invest money for others (like fund managers) and get an exception from normal consolidation rules
• Not-for-profit entities — including government bodies, charities, universities and local councils (with specific Australian guidance)

The core rule: Control = Consolidation

A parent must consolidate a subsidiary when it controls that subsidiary. Control exists only when all three of these are present:

1. Power — the ability to direct the activities that significantly affect the subsidiary's returns (usually through voting rights, but can be through contracts or other arrangements)
2. Variable returns — exposure to profits or losses that can go up or down based on the subsidiary's performance
3. Link between power and returns — the ability to use that power to affect the amount of returns received