As is normal in modern business, companies will acquire other businesses, purchase ownership stakes in them, and have common ownership. This often takes the form of a hierarchy type structure where one company will be the parent company to several other companies effectively under its control, however more complex ownership arrangements can be implemented.
When businesses are combined for the purposes of one consolidated reporting package, rather than issuing a separate reporting package for each entity, IFRS 3 sets out specific guidance for how to approach this matter. This standard states in depth the nature of how these relationships must be accounted for in the financial statements. For example, the acquiring (purchasing) entity must be identified, specific methodologies must be used to value the assets purchased, as well as to identify any intangibles such as goodwill that were purchased above and beyond the hard assets of the company. Hard assets are considered to be more easily captured in financial statements than intangibles are, so this guidance is very useful in this regard.
IFRS are principles based standards, rather than strict rules based standards that govern international accounting. IFRS standards differ from IAS standards in that they began being introduced in 2001, whereas IAS were produced prior to this date by the IASC, or the International Accounting Standards Committee. Therefore when an IFRS standard and an IAS standard conflict, the IFRS is generally more authoritative due to being more recent.
Accounting made easy, for FREE!
Access the contact form and send us your feedback, questions, etc. We are always welcome to help someone out. You can also contact us if you wish to submit your writing, cartoons, jokes, etc. and we will consider posting them to share with the world! The Facebook and LinkedIn groups are also good areas to find people interested in accounting like yourself, don’t hesitate to join as everyone of all levels are welcome to become part of the community.