TABLE OF CONTENTS

ABSTRACT………………………………………………………………………1

INTRODUCTION………………………………………………………………..1-2
WHAT ARE GROUP STATEMENTS?

BACKGROUND………………………………………………………………….2-5
ESTABLISHMENT OF THESE SET-STANDARDS
IAS 27: SEPARATE FINANCIAL STATEMENTS
IAS 28: INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

OBJECTIVES…………………………………………………………………….5-10
WHY PREPARE GROUP STATEMENTS?
IFRS 3: BUSINESS COMBINATIONS
IFRS 10: CONSOLIDATED FINANCIAL STATEMENTS
IFRS 11: JOINT ARRANGEMENTS
IFRS 12: DISCLOSURE OF INTEREST IN OTHER ENTITIES

GAAP STATEMENTS

REFERENCES……………………………………………………………………11
 ABSTRACT
The main objective of the accounting function is to produce comparable, consistent, accurate
and easily understandable financial statements and reports at any given point. There are
numerous sources in which any country or business can find regulations that can govern them
in these accounting functions. The sources include the national company law which include
case laws and statutory laws, the national accounting standards, the local stock exchange
requirements and the International Accounting Standards (IAS). To help ensure that these
regulations are achieved, every country has an accounting body that produces a set of
standards and regulations that all financial statements must be produced in accordance with.

The only problem that these International Accounting Standards and regulations have is that
they vary from country to country. Therefore making it difficult to compare and contrast the
financial statements of organisations that operate in different countries, so to solve this
problem, the concept of a Regulatory Framework was introduced by the International
Accounting Standards Board (IASB) in 2001. Its main aim was to produce a universal set of
accounting standards and regulations or International Financial Reporting Standards (IFRS)
that would transcend borders and be adopted internationally.

INTRODUCTION
The term group financial statements or group statements refers to all forms of annual
financial statements used for complying with the overriding requirements that a group of
entities must present group annual financial statements. These financial statements must be in
conformity with the Statements of Generally Accepted Accounting Practises (GAAP) which
fairly present the state of affairs of the group of entities and its business at the end of the
financial year concerned. The Statements also present the profit or loss of the group for that
financial year.
Minority interests should be presented in the consolidated balance sheet within equity, but separate from the parent's shareholders' equity. Minority interests in the profit or loss of the group should also be separately disclosed

Minority interests should be presented in the consolidated balance sheet within equity, but separate from the parent's shareholders' equity. Minority interests in the profit or loss of the group should also be separately disclosed.

ssseparate from the parent's shareholders' equity. Minority interests in the profit or loss of the
group should also be separately disclosed.

Group statements basically deal with business combinations and these combinations include
direct acquisition of a company’s assets and liabilities and the acquisition of the controlling
interest. Business combinations are as a result of the establishment of IFRS 3 which deals in
the accounting treatment and initial determination of the value attached to the subsidiary
being acquired on the date of acquisition. This standard deals with the methods of accounting
for business combinations and their effects on consolidation, including goodwill or gain on
bargain purchase arising on a business combination.

The controlling interest then gives rise to IFRS 10 which deals with consolidated financial
statements. These consolidated financial statements deal with the procedures and accounting
treatment after the date of acquisition. IFRS 10 deals with the preparation and presentation of
consolidated financial statements for a group of entities under the control of the parent.
in the consolidated balance sheet within equity, but separate from the parent's shareholders' equity. Minority interests in the profit or loss of the group should also be separately disclosed.

Minority interests should be presented in the consolidated balance sheet within equity, but separate from the parent's shareholders' equity. Minority interests in the profit or loss of the group should also be separately disclosed.

BACKGROUND
The predecessor body to the International Accounting Standards Board (IASB), the
International Accounting Standards Committee (IASC), issued the Framework for the
preparation and presentation of financial statements which can be simply referred to as the
framework. Such a framework can be regarded as a constitution for financial accounting and
reporting. This very framework could also be viewed as a set of interrelated objectives and
theoretical principles, which forms a reference for the underlying discipline. Whereas in the
case of financial reporting, it concerns the provision of information that is useful in making
economic decisions. The framework, therefore, established the basis for determining which
events should be reported, how they should be measured and the format in which they should
be communicated to users. The International Accounting Standards Board (IASB)
commenced with its project to update the framework and replaced the current framework
with the Conceptual Framework for Financial Reporting and is referred to as the conceptual
framework.

The conceptual framework was initially jointly developed between the International
Accounting Standards Board (IASB) and the US Financial Accounting Standards Board
(FASB) with a view to achieve convergence between the two accounting frameworks. The
IASB currently envisaged the completion of the conceptual framework by September 2015.
The previous framework dealt exclusively with financial statements while the conceptual
framework establishes an objective for financial reporting in general, although mostly
involving the financial statements. The scope of the conceptual framework is therefore
broader than that of the framework of long back.
The IASB was established in 2001 with objectives that included that of developing in the
public interest, a single set of high quality, understandable and enforceable global accounting
standards that require high quality, transparent and comparable information in financial
statements and other financial reporting to help participants in the various capital markets of
the world and other users of the information to make economic decisions.

Furthermore, they were established to work actively with national standard-setters. These
national standard-setters can then be referred to as the Generally Accepted Accounting
Practises (GAAP) which vary from country to country. These standards bring about
convergence of national accounting standards and IFRSs to high quality solutions. They were
also established to help try to promote the use and rigorous application of the International
Financial Reporting Standards and so many others.

First and foremost we have to understand the applicability of these set standards in preparing
consolidated financial statements. Looking at IAS 27 which deals with the preparation of
Separate financial statements it is then governed by two major objectives. These objectives
include firstly, the preparation and presentation of consolidated financial statements for a
group of entities under the control of a parent and secondly, in accounting for investments in
subsidiaries, jointly controlled entities, and associates when an entity elects, or is required by
local regulations, to present separate financial statements.

The separate financial statements apply to when an entity prepares separate financial
statements that comply with the IFRS. The standard contains accounting and disclosure
requirements for investments in subsidiaries, joint ventures and associates when an entity
prepares separate financial statements. IAS 27 requires an entity to prepare separate financial
statements to account for those investment costs. When an entity prepares separate financial
statements, investments in subsidiaries, associates, and jointly controlled entities are
accounted for either by cost or in accordance with IAS 39 which deals with financial
instruments which are in line with their recognition and measurement, or simply make use of
the equity method.

When separate financial statements are prepared for a parent, they shall disclose the fact that
the financial are separate financial statements and that the exemption from consolidation has
been used. A list of significant investments in subsidiaries, jointly controlled entities and
associates as well as including some personal information of the entity life the name, county
of incorporation or residence and things like that, should also be disclosed. Lastly, they may
also have to disclose a description of the method used to account for the investment that the
entity is willing to embark on.

Looking yet into another standard IAS 28, this particular standard deals with Investments in
joint ventures and associates. An associate is an entity over which the investor has
significant influence that is the investor holds 20% or more voting rights directly or
indirectly. By significant influence we mean that an investor has power over an investee, and
has the power to participate in the financial and operating policy decisions of the investee, but
does not mean control or joint control over those policies. A joint venture is a joint
arrangement whereby the parties that have joint control of the arrangement have rights to the
net assets of the arrangement. When we say joint control we mean that an investor has joint
control over the investee in that they contractually agreed sharing of control of a particular
arrangement. This arrangement will only exist when all the decisions about the relevant
activities require the unanimous consent of the parties sharing control.

The Standard prescribes the principles to be applied for the equity accounting of associates,
or joint ventures. The equity method is an accounting method whereby the investment is
initially recorded at cost and is subsequently adjusted for the post-acquisition change in the
investor’s share of the net assets of the investee. The investor’s profit or loss includes its
share of the investee’s profit or loss and the investor’s other comprehensive income includes
its share of the investee’s other comprehensive income. This investment is initially recorded
at cost and after the date of acquisition, increases or decreases are recorded by including
things like the proportionate share of the profit or loss of the investor in the investee after the
date of acquisition or distributions received from the investee which reduces the carrying
amount of the investment and the portion of prior year adjustments in the investee since the
date of acquisition. This investment can be journalized as shown below:
Example:
On 1 January 2017, Kline Ltd acquired 25% of Max Ltd for $150 000, which gives Kline Ltd
the power to participate in the financial and operating policy decisions of Max Ltd thus
making him an associate of Kline Ltd. Required to journalise using equity method.
DR CR
Investment in associate (SOFP) 150 000
 Bank (SOFP) 150 000
Acquisition of associate – Max Ltd

An entity may need not apply the equity method to its investment in an associate or joint
venture if the entity is a parent that is exempt from preparing consolidated financial
statements.

However, IAS 27 and IAS 28 had its own limiting factors which caused problems in
accounting for group financial statements which then resulted in these standards being
superseded by other well performing standards and these standards were known as the
International Financial Reporting Standards.

OBJECTIVES
Basically due to the introduction of these standards that is, IFRS 3 which deals with Business
combinations has improved the relevance, reliability and comparability of a business
combination in the financial statements. A business combination is defined as a transaction
or other event in which an acquirer obtains control of one or more businesses and this refers
to expansion of a business by external growth. A business combination may be structured in a
variety of ways which are determined by legal, taxation, business or other considerations but
the assets or liabilities acquired must constitute a business. This combination may include the
purchase of the business of another entity contained in a separate unit or the purchase of the
net assets of a business.
When we purchase net assets of a business this means that the assets of the acquiree now
belong to the acquirer and no shares have been passed down or have been purchased by the
acquirer. Goodwill or gain on a bargain purchase may arise on the acquisition date if there is
a difference between the consideration transferred and the value of the net assets. Lastly, no
consolidated financial statements are prepared when we purchase assets.
Whereas when we decide to purchase shares of another entity, the acquiree now becomes the
subsidiary of the acquirer and control has now been obtained. Goodwill or gain on a bargain
purchase may arise on the acquisition date and consolidated financial statements must be
drawn up.

A business combination transaction may take place between the shareholders of the
combining entities or between one entity and the shareholders of the other entity. The
business combination may involve the establishment of a new entity to have control over the
combining entities, the transfer of the net assets of one or more of the combining entities to
another entity, or the dissolution of one or more of the combining entities. When the
substance of the transaction is consistent with the definition of a business combination as
contained in IFRS 3, the accounting and disclosure requirements are applicable, irrespective
of the particular structure adopted for the combination.

When accounting for business combinations the entity makes use of the acquisition method
and this method follows five steps that should enable us to conclude that it is a business
combination. Firstly, we have to identify the acquirer. The acquirer is the entity that obtains
control over the other entities as a result of the transaction. An acquirer can also be identified
if the combination is effected primarily by transferring cash or other assets, or by incurring
liabilities, or if the business combination is made via an exchange of equity instruments or
merely by its size as compared to the entity that is being bought.

We then move on to identifying the acquisition date and this is when control by the acquirer
was obtained. The standard determines that the closing date is the date on which the acquirer
legally transfers the consideration to shareholders of the acquiree, acquires the assets, and
assumes the liabilities of the acquiree. It is important to determine the acquisition date, as it
is the date on which the fair value of the consideration transferred. The consideration
transferred can be offered in various forms which may include the use of cash, deferred
consideration or contingent consideration and many others. In the business combination and
the fair value of the identifiable assets and liabilities will be measured. The identifiable assets
acquired, liabilities assumed, and contingent liabilities are to be recognised and measured are
therefore those of the acquiree that existed as at the acquisition date. Liabilities are not
recognised as part of the fair value exercise if they result from the acquirer’s intention or
future actions because they did not exist at the acquisition date. It is also the date from which
the results of the acquiree will be incorporated into the consolidated financial statements of
the acquirer.

Which then leaves us with the last and final step of calculating the non-controlling interest as
well as goodwill or the gain on bargain purchase. At the acquisition date, the acquirer shall
recognise, separately from goodwill any non-controlling interests. The standard allows a
choice of two methods according to which non-controlling interests at the acquisition date
could be measured. The first method is that of fair value at the acquisition date or the present
ownership instruments’ proportionate share in the recognised amounts of the acquiree’s
identifiable net assets. All other components of the non-controlling interests shall be
measured at their acquisition date fair values as indicated by the quoted price in an active
market, or in the absence thereof, calculated using another valuation technique, unless
another measurement basis is required by IFRS.
Example:
P Ltd obtained an 80% equity interest in the shares of S Ltd on 1 Jan 2018 and paid $100 000
in cash and transferred a vehicle with a carrying amount of $40 000 which is equal to the
market value, and an original cost of $60 000, to S Ltd to settle the payment for the purchase
of $140 000.
DR CR
Ordinary shares 100 000
Retained earnings 50 000
Goodwill (140+30)-(100+50) 20 000
Investment in subsidiary (S Ltd) 140 000
Non-controlling interest ((100+50)*20%) 30 000
Being assets transferred and shares being issued as consideration.

Once this stage is reached we can safely prepare the Shareholder’s Equity Schedule which
will help us when we are preparing the consolidated statement. This analysis sheet is prepared
only for subsidiaries and it is prepared at acquisition and after acquisition and that is
according to IFRS 10.

Moving on, in preparation of these consolidated financial statements we make use of the
standard IFRS 10 which deals with ultimate control in presenting Consolidated statements
and these are prepared after the acquisition date. IAS 27 is partially replaced by IFRS 10
whose main objective is to establish principles for the preparation and presentation of
consolidated financial statements when an entity controls one or more entities. Control is
defined as when the investor is exposed or has rights to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the
investee. Group accounts consolidate the results and net assets of group members to present
the group to the parent’s shareholders as a single entity. This on the other hand reflects the
economic substance and contrasts with the legal form where the company is a separate legal
person.

When preparing consolidated financial statements, the consolidation process commences with
adding together or combining like items of assets, liabilities, equity, income and expenses as
they appear in the financial statements of the parent and its subsidiary on a line-by-line basis.
It is required that the carrying amount of the investment in each subsidiary be offset against
the parent’s portion of equity in such a subsidiary at acquisition, the non-controlling interests
in the profit or loss and other comprehensive income of consolidated subsidiaries for the
period be calculated and identified separately from those of the owners of the parent, to
determine amounts attributable to the parent, and lastly, non-controlling interests in the net
assets of consolidated subsidiaries be shown separately from the interest of the owners of the
parent in equity in the consolidated statement of financial position. Such non-controlling
interests consist of the sum of the amount determined at the date of the original business
combination as well as the non-controlling interests’ share of equity changes since that date.

However, there are certain intragroup balances and transactions that IFRS 10 requires us to
eliminate fully. Where an associate or joint venture is accounted for using the equity method,
unrealised profits and losses resulting from “upstream” and “downstream” transactions
between an entity or its consolidated subsidiaries and associates or joint ventures should be
eliminated to the extent of the entity’s interest in the associate or joint venture. “Upstream”
transactions are sales from an associate or joint venture to the investor, while “downstream”
transactions are sales from the investor to its associate or joint venture. When downstream
transactions provide evidence of an impairment of the transferred asset, the unrealised losses
should be recognised in full by the investor. When upstream transactions provide evidence of
a reduction or an impairment of the transferred asset, the investor shall recognise its share in
the losses.

The elimination of profit according to the shareholding in the selling company, means that the
non-controlling interests, if any, will also bear a portion of the eliminated profit if the
subsidiary was the seller of the goods concerned. Temporary differences that arise from the
elimination of such profits and losses can also be dealt with.
Example:
Posse Ltd is a 70% subsidiary of Bata Ltd. During the current reporting period ending 31
December 2017, Bata Ltd granted a loan of $70 000 to Posse Ltd. Interest paid during the
period amounted to $7 000. The capital amount of the loan is repayable in a lump sum in
three years’ time. The tax rate is 28%.
DR CR
Loan payable to parent (SOFP) (Posse) 70 000
Loan receivable from subsidiary (SOFP) (Bata) 70 000
Elimination of intragroup loan

DR CR
Interest income (SOCI) (Bata) 7 000
Finance cost (interest expense) (SOCI) (Posse) 7 000
Elimination of interest on intragroup loan

The profit or loss and each component of other comprehensive income of a subsidiary are
attributed to both the owners of the parent and the non-controlling interests. Thus if there is a
loss, it is allocated to the non-controlling interests even if this results in the non-controlling
interests having a deficit (debit) balance on the statement of financial position. This is
because the non-controlling interests also represent equity participants, and that it should thus
share in both the profits and losses of the subsidiary.

The financial statements of the parent and its subsidiaries shall be prepared as of the same
reporting date. If the end of the reporting periods of the companies that is the parent and
subsidiary differ, the subsidiary should prepare financial statements as of the same date as the
financial statements of the parent for consolidation purposes.

We can also look into IFRS 11 whose main focus is on Joint arrangements as well as IFRS
12 which deals in disclosure of interest in other entities. IFRS 11 focuses on investments
where an investor can exercise joint control, in contrast to control that is established between
a parent and a subsidiary in terms of IFRS 10. A joint arrangement is an arrangement where
two or more parties exercise joint control that is, the contractually agreed sharing of control
meaning that the unanimous consent of the parties sharing control is required for all decisions
about the relevant activities. A joint arrangement is either a joint operation or a joint venture.
A joint operator includes its interest in a joint operation in its own accounting records and
accounts for its interest in its separate financial statements and, if applicable, in its
consolidated financial statements according to its share in the joint operation. A joint operator
thus recognises its assets, including its share of any assets held jointly, its liabilities, including
its share of any liabilities incurred jointly and revenues and expenses jointly.

No adjustments or other consolidation procedure are required when the operator prepares
consolidated group financial statements because the assets, liabilities, income and expenses
of the joint operation are already recognised in the separate financial statements of the
operator.
IFRS 12 which focuses on Disclosure of interests in other entities, applies to entities that
have an interest in a subsidiary, joint arrangements, associates and unconsolidated structured
entities. An entity must disclose information to enable users of the financial statements to
evaluate the nature, extent, risk and financial effects of its interests in other entities, including
the nature and effects of relationships with other investors, as well as the nature of and
changes in the risks associated with these investments. An entity must disclose information
about significant adjustments and assumptions made.

So overall, the objective of Generally Accepted Accounting Practises (GAAP) is to provide

information in a structured fashion about the financial position, performance and cash flows
of an entity. This information should be useful to a wide range of users in making economic
decisions. The objective of IAS 1 is to prescribe the basis for presentation of GAAP financial
statements and these statements are intended to meet the needs of those users who are not in a
position to require an entity to prepare reports tailored to their particular information needs.
Adherence to the requirements of the standard should ensure comparability both with the
entity’s own financial statements of previous periods and with the financial statements of
other entities, including foreign and international entities complying with International
Financial Reporting Standards (IFRS).

IAS 1 applies to all types of entities that is, not only to companies but also to other forms of
entities such as public sector enterprises, banks, close corporations, partnerships, sole
proprietors, non-profit organisations and trusts. All GAAP financial statements prepared and
presented in accordance with IFRS should comply with the requirements of the standard.
Where not suitable, entities with not-for-profit activities may amend the descriptions used in
the standard for particular line items and for the financial statements themselves.
REFERENCES

1. DELOITTE DOCUMENTATION ON IFRS

2 DUSTY STALLINGS AND PARTNER
3 ELLIOT B, ELLIOT J, (2011) FINANCIAL ACCOUNTING AND REPORTING.
14TH EDITION. ENGLAND, PEARSON EDUCATION LTD
4 GAAP DYNAMICS
5 GROUP FINANCIAL REPORTING (2013) PRETORIA
6 HANDBOOK OF IAASB, 2012 EDITION VOLUME 1, NEW YORK, IFAC
7 KOPPESCHAAR.Z, ROSSOUW.J, (2014) DESCRIPTIVE ACCOUNTING, 19 TH
EDITION, PRETORIA, LEXIS NEXIS
8 MANS.K, BOSHOFF.A, (2004) GROUP STATEMENTS VOLUME 1, 9 TH
EDITION, DURBAN, LEXIS NEXIS
9 WRAY.C, (2007) GET READY FOR IFRS
10 2014 IFRS FOUNDATION