IFRS Accounting Standards provides indicators of control, some of which individually determine the need to consolidate. However, where control is not apparent, consolidation is based on an overall assessment of all of the relevant facts, including the allocation of risks and benefits between the parties. The indicators provided under IFRS Accounting Standards help the reporting entity in making that assessment. Consolidation in financial statements is required under IFRS Accounting Standards when an entity is exposed to variable returns from another entity and has the ability to affect those returns through its power over the other entity.

US GAAP has a two-tier consolidation model: one focused on voting rights (the voting interest model) and the second focused on a qualitative analysis of power over significant activities and exposure to potentially significant losses or benefits (the variable interest model). Under US GAAP, all entities are first evaluated to determine whether they are variable interest entities (VIEs). If an entity is determined not to be a VIE, consolidation is assessed on the basis of voting and other decision-making rights under the voting interest model.

Even in cases in which both US GAAP and IFRS Accounting Standards look to voting rights to drive consolidation, differences can arise. Examples include cases in which de facto control exists (when a minority shareholder has the practical ability to exercise power unilaterally) and how the two frameworks address potential voting rights. As a result, careful analysis is required to ensure proper accounting under the two frameworks.

Differences in consolidation under US GAAP and IFRS Accounting Standards may also arise when a subsidiary’s set of accounting policies differs from that of the parent. While under US GAAP it is acceptable to apply different accounting policies within a consolidation group to address issues relevant to certain specialized industries, exceptions to the requirement to consistently apply standards in a consolidated group do not exist under IFRS Accounting Standards. In addition, potential adjustments may occur in situations where a parent company has a fiscal year-end different from that of a consolidated subsidiary (and the subsidiary is consolidated on a lag). Under US GAAP, significant transactions in the gap period may require disclosure only, whereas IFRS Accounting Standards may require recognition of transactions in the gap period in the consolidated financial statements.

Even when both US GAAP and IFRS Accounting Standards indicate that an entity should be consolidated, the initial consolidation could differ (e.g., acquisition of a VIE that is not a business would follow specific guidance under US GAAP as described in SD 12.4.1 that differs from the accounting treatment under IFRS Accounting Standards).

ASC 205, ASC 323, ASC 323-10-15-8 to ASC 323-10-15-11, ASC 325-20, ASC 810, ASC 810-10-25-1 to ASC 810-10-25-14, ASC 810-10-60-4, SAB Topic 5H

IAS 1, IAS 27, IAS 28, IAS 36, IAS 39, IFRS 9, IFRS 5, IFRS 10, IFRS 11, IFRS 12

The following discussion captures a number of the more significant GAAP differences; it is not inclusive of all GAAP differences in this area.