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12.2 Requirements to prepare consolidated financial statements
Publication date: 30 Jun 2023
us IFRS & US GAAP guide
The requirements for consolidated financial statements are fairly similar under both frameworks. Neither IFRS Accounting Standards nor US GAAP provide for the consolidation of a pension plan by its sponsor. In addition, both have provisions that prevent the consolidation of many investment entities. IFRS Accounting Standards do not provide industry-specific exceptions to the requirement for consolidation of controlled entities, with the exception of specific guidance for investment entities. In addition, in limited circumstances, IFRS Accounting Standards may be more flexible with respect to the ability to issue nonconsolidated financial statements (i.e., parent-only, separate financial statements).
US GAAP | IFRS Accounting Standards |
Absent a scope exception, any legal entity—regardless of its legal form and the scope of its activities—may be subject to consolidation under ASC 810. The guidance applies to legal structures, including corporations, partnerships, limited liability companies, grantor trusts, and other trusts.
Scope exceptions include the following legal entities (see CG 2.2):
| IFRS 10 requires parent entities to present consolidated financial statements, with certain exceptions, which differs from US GAAP. Parent entities are exempt from preparing consolidated financial statements when all of the following conditions apply (IFRS 10.4):
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Consolidated financial statements are presumed to be more meaningful and are required for SEC registrants.
With the exception of the items noted above, there are no exemptions for consolidating subsidiaries in general-purpose financial statements.
| A subsidiary is not excluded from consolidation simply because the investor is a venture capital organization, mutual fund, unit trust, or similar entity. However, an exception is provided for an investment entity (as defined in SD 12.3) from consolidating its subsidiaries unless those subsidiaries are providing investment-related services. Instead, the investment entity measures those investments at fair value through profit or loss. The exception from consolidation only applies to an investment entity’s financial reporting. This exception does not apply to the financial reporting by a non-investment entity, even if it is the parent of an investment entity.
When separate financial statements are prepared, investments in subsidiaries, joint ventures, and associates can be accounted for:
The same accounting is required for each category of investments.
However, investments in associates or joint ventures held by venture capital organizations, mutual funds, unit trusts or similar entities or investments entities accounted for at fair value in the consolidated financial statements should be measured at fair value in the separate financial statements.
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