International Financial Reporting Standards

Accounting for
business combinations
and consolidated
financial statements
International Financial Reporting Standards

Control
PSAK 65 / IFRS 10 Consolidated Financial
Statements

[[[
Objective 3

• Information about
• resources under the control of the group (assets)
and
• claims against those resources
assists users to better assess the prospects for future
net cash inflows to the group which is useful in making
decisions about providing resources to the group.
• The global financial crisis highlighted the importance of
enhancing disclosure requirements, in particular for
special purpose or structured entities.
Definition of control 4

An investor controls an investee 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.
• Single consolidation model for all entities, including structured
entities
• Consolidation based on control – ‘power so as to benefit’
model
• Investor must have some exposure to risks and rewards
• Exposure is an indicator of control but not control of itself
• Power arises from rights—voting rights, potential voting
rights, other contractual arrangements, or a combination
thereof.
Assessing control of an investee 5

• Consider the purpose and design

• Identify the activities of the investee that significantly
affect the returns of the investee (relevant activities)
• Identify how decisions about relevant activities are
made
• Determine whether the rights of the investor give it the
ability to direct the relevant activities (see next slide)
• Determine whether the investor is exposed, or has
rights, to the variability associated with the returns of
the investee
• Determine whether the investor has the ability to use its
power over the investee to affect its own returns
De facto control 6

• Entity can control with less than 50% of voting rights.

• Factors to consider include:
• size of the holding relative to the size and
dispersion of other vote holders
• potential voting rights
• other contractual rights
• If the above not conclusive consider additional facts and
circumstances that provide evidence of power (eg
voting patterns at previous board meeting, etc)
Example:
de facto control 7

• Entity A owns 45 per cent of the ordinary shares of

Entity B to which voting rights are attached.
• Entity A is the largest shareholder of Entity B.
• It also has the right to appoint the majority of the
members of the Board of Directors (the management
board) of Entity B in accordance with special rights
given to Entity A in the founding document of the entity.
Potential voting rights 8

• Substantive potential voting rights (PVR) can give the

holder power
• Consider the terms and conditions, including:
• Whether there are any barriers that prevent the
holder from exercising
• Whether exercise of the rights would be beneficial
to the holder
• Whether the rights are exercisable when decisions
need to be made
Agency relationships 9

• Consider all of the following factors:

• scope of the decision-making authority
• rights held by other parties (ie kick-out rights)
• remuneration of the decision-maker
• other interests that the decision maker holds in the
investee
Judgements and estimates 10

• Determining whether an investor controls an investee

involves assessing whether the investor:
• has power over the investee
• exposure, or rights, to variable returns from its
involvement with the investee
• the ability to use its power over the investee to
affect the amount of the investor’s returns.
Judgements and estimates continued 11

• Factors to consider when assessing whether control

exists include, for example:
• assessing the purpose and design of the investee
(eg are voting rights or contractual arrangements
the dominant factor?)
• identifying relevant activities and how decisions
about those activities are made
• assessing current ability to direct (practical ability to
direct the relevant activities unilaterally?)
International Financial Reporting Standards

PSAK 22 / IFRS 3
Business Combinations

[[[
Introduction 13

• A business combination is a transaction or other event

in which a reporting entity (the acquirer) obtains control
of one or more businesses (the acquiree).
• PSAK 22/IFRS 3 does not apply to the following:
• the formation of a joint venture
• the acquisition of an asset or group of assets that is
not a business as defined
• a combination of entities or businesses under
common control
The acquisition method 14

• Business combinations are accounted for using the

acquisition method, ie
• identifying the acquirer;
• determining the acquisition date;
• recognise and measure the identifiable assets
acquired and the liabilities assumed and any non-
controlling interest; and
• recognise and measure any goodwill or bargain
purchase.
Identifying the acquirer 15

• The acquirer is the entity that obtains control of another

entity
Determining the acquisition date 16

• The acquisition date is the date on which the acquirer

obtains control
• often the date the consideration is transferred,
assets are acquired and liabilities assumed—
closing date
• may be other dates (earlier or later than the closing
date) at which control is assumed
Recognition and measurement 17

• Recognition principle :
• separate recognition of identifiable assets acquired,
liabilities and contingent liabilities assumed (think
Conceptual Framework)
• Measurement principle :
• assets and liabilities that qualify for recognition are
measured at their acquisition-date fair values
• measurement at fair value provides relevant
information that is more comparable and
understandable.
Exceptions to the measurement 18

• Reacquired rights
• measured at fair value based on remaining
contractual term ignoring the fair value effect of
renewal
• Share-based payment transactions
• replacement awards: measured in accordance with
PSAK 53/IFRS 2
• Assets held for sale
• measured in accordance with PSAK 58/IFRS 5 (ie
fair value less costs to sell)
Exceptions to both the recognition
and measurement principles 19

• Income taxes
• deferred tax assets or liabilities arising from acquired
assets or liabilities accounted for using PSAK 48/IAS
12
• Employee benefits
• accounted for using PSAK 24/IAS 19
• Indemnification assets
• may not be recognised at fair value if it relates to an
item not recognised or measured in accordance with
PSAK 22/IFRS 3
Consideration transferred 20

• The consideration transferred is measured at the fair

value of the sum of assets transferred and liabilities
assumed
• acquisition-related costs are excluded
• contingent consideration is included at its fair value
at acquisition date (subsequent changes in fair
value are not included in the consideration
transferred at acquisition-date)
Goodwill 21

Goodwill (an asset) is measured initially indirectly as the

difference between the consideration transferred excluding
transaction costs in exchange for the acquiree’s identifiable
assets, liabilities and contingent liabilities (measured as set
out above)
Goodwill continued 22

• If the value of acquired identifiable assets and liabilities

exceeds the consideration transferred, the acquirer
immediately recognises a gain (bargain purchase)
• Goodwill is not amortised, but is subject to an impairment
test.
• If less than 100% of the equity interests of another entity is
acquired in a business combination, non-controlling
interest is recognised.
• Choice in each business combination to measure non-
controlling interest either at fair value or at the non-
controlling interest’s proportionate share of the acquiree’s
identifiable net assets.
Disclosure 23

• Comprehensive disclosure requirements designed to

enable users to evaluate the nature and financial
effects of business combinations (and any
adjustments made to prior period business
combinations).
International Financial Reporting Standards

PSAK 65 / IFRS 10
Consolidated Financial
Statements

[[[
The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
Introduction 25

• PSAK 65/IFRS 10 establishes principles for the

presentation and preparation of consolidated financial
statements when an entity controls one or more other
entities.
Who presents consolidated
financial statements? 26

• An entity that has one or more subsidiaries (a parent)

must present consolidated financial statements.
• Two exceptions:
• a parent if:
• its owners have been informed and do not object,
• its securities are not publicly traded or in the process of
becoming publicly traded, and
• its parent publishes IFRS-compliant financial statements
that are available to the public.
• Post-employment plans or other long-term employee
benefit plans to which PSAK 24/IAS 19 applies
Principle 27

• Consolidated financial statements present the parent

and all its subsidiaries as financial statements of a
single economic entity
• uniform accounting policies
• same reporting periods
• eliminate intragroup transactions and balances
• non-controlling interest (the equity in a subsidiary that is
not attributable, directly or indirectly, to the parent) is
presented within equity, separately from the parent
shareholders’ equity.
Non-controlling interest (NCI) 28

• Non-controlling interest (NCI) in net assets consists of:

• the amount of the NCI recognised in accounting for
Bus Com at date of acquisition; plus
• the NCI’s share of recognised changes in equity (ie
recognised changes in Sub’s net assets) since the
date of the combination.
Loss of control 29

• If a parent no longer controls a subsidiary, the parent:

• Derecognises the assets and liabilities of the
former subsidiary.
• Recognises any retained investment at fair value
when control is lost. This investment is
subsequently accounted for as a financial
instrument or, if appropriate as an associate or joint
venture.
• Recognises a gain or loss associated with loss of
control.
International Financial Reporting Standards

PSAK 67/IFRS 12
Disclosure of Interests in
Other Entities

[[[
Introduction 31

• PSAK 67/IFRS 12 applies to entities that have an

interest in a subsidiary, a joint arrangement, an
associate or an unconsolidated structured entity.
• It does not apply to (paragraph 6):
• Post-employment plans to which PSAK 24/IAS 19
applies.
• Entities’ separate financial statements to which PSAK
4/IAS 27 applies.
• A joint arrangement where joint control does not exist
(unless significant influence exists).
• An interest in another entity accounted for in terms of
PSAK 71/IFRS 9 (with exceptions).
Reasons for issuing PSAK 67/IFRS
12 32

• Users have consistently requested improvements to the

disclosure of a reporting entity’s interests in other
entities.
• The global financial crisis also highlighted a lack of
transparency about the risks to which a reporting entity
was exposed from its involvement with structured
entities.
• In response to input received from users and others, the
IASB decided to address in IFRS 12 the need for
improved disclosure of a reporting entity’s interests in
other entities.
Objective 33

• PSAK 67/IFRS 12 requires an entity to disclose

information that enables users of financial statements to
evaluate:
• the nature of, and risks associated with, its interests
in other entities; and
• the effects of those interests on its financial position,
financial performance and cash flows.
• That evaluation assists users in making decisions about
providing resources to the entity.
Disclosures 34

• significant judgements and assumptions made

• information about interests in:
• subsidiaries
• joint arrangements and associates
• unconsolidated structured entities
• any additional information that is necessary to meet the
disclosure objective

Strike a balance between overburdening financial

statements with excessive detail and obscuring information
as a result of too much aggregation
Subsidiaries 35

• The composition of the group (including any

changes)
• Involvement of NCI in the group’s activities
(including profit and loss allocation and
summarised financial information for subsidiaries
with large NCI)
• The effect of significant or unusual restrictions on
assets and liabilities
• The nature of, and changes in, the risks
associated with structured entities
Unconsolidated structured entities 36

Nature and extent of interests in unconsolidated structured

entities
• eg nature, purpose, size, activities and financing
• For sponsors not providing other risk disclosures
• Type of income earned
• The carrying amount of all assets transferred
Nature of, and changes in, the risks associated with an
entity’s interests
• Carrying amount of the assets and liabilities recognised
• Maximum exposure to loss and comparison to carrying
amounts
• Non-contractual support provided
International Financial Reporting Standards

PSAK 15/IAS 28
Investments in Associates &
Joint Ventures

[[[
Scope and Criterion
• IAS 28/PSAK 15 requires that the equity method
be used for
1. Corporate joint ventures
2. Companies in which the investor’s voting stock interest
gives the investor the “ability to exercise significant
influence over operating and financial policies” of that
company
• IAS 28/PSAK 15 establishes a “significant influence”
criterion: 20 percent rule
– In the absence of evidence to the contrary, an investor
holding 20 percent or more of an investee’s voting stock
is presumed to have the ability to exercise significant
influence over the investee.
Significant Influence
• The existence of significant influence by an
investor is usually evidenced in one or more of the
following ways
1. representation on the board of directors or equivalent
governing body of the investee
2. participation in policy-making processes, including
participation in decisions about dividends or other
distributions;
3. material transactions between the investor and the
investee;
4. interchange of managerial personnel; or
5. provision of essential technical information.
The Equity Method
• The equity method is intended to reflect the
investor’s changing equity or interest in the
investee.
• The investment is recorded at the initial purchase
price and adjusted each period for the investor’s
share of the investee’s profits or losses and the
dividends declared by the investee.
The Equity Method (2)
• Investor’s equity in the investee
– The investor records its investment at the original cost.
– This amount is adjusted periodically for changes in the
investee’s stockholders’ equity occasioned by the
investee’s profits, losses, and dividend declarations.

Reported by Investee Effect on Investor's Accounts

Net income Record income from investment
Increase investment account
Net loss Record loss from investment
Decrease investment account
Dividend declaration Record asset (cash or receivable)
Decrease investment account
International Financial Reporting Standards

PSAK 66/IFRS 11
Joint Arrangements

[[[
Definition

• Joint Arrangements (Pengaturan Bersama) is an

arrangement of which two or more parties have joint
control.
• Jointly Control (Pengendalian Bersama) is the
contractually agreed sharing of control of an
arrangement, which exists only when decisions
about the relevant activities require the unanimous
consent (suara bulat) of the parties sharing control.
Definition

• Joint Operation (Operasi Bersama) is a joint

arrangement whereby the parties that have joint
control of the arrangement have rights to the assets,
and obligations for the liabilities, relating to the
arrangement.
• Joint Venture (Ventura Bersama) is a joint
arrangement whereby the parties that have joint
control of the arrangement have rights to the net
assets of the arrangement.
PSAK 66 / IFRS 11 AND RELATED STANDARDS

Control?

Consolidate using YES NO Joint control?

PSAK 65/IFRS 10
YES NO
PSAK 67/IFRS 12 Decide type of joint
Disclosures Significant
arrangement using
PSAK 66/IFRS 11
influence?
Joint Operation Joint Venture YES NO
Account for assets, Account for
liabilities, revenues and investment using PSAK
expenses PSAK 15/IAS 28 71 /
PSAK 67/IFRS 12 PSAK 67/IFRS 12 IFRS 9
Disclosures Disclosures
Types of Joint Arrangement

Not structured through a Structured through a

separate vehicle separate vehicle

Assess the parties’ rights and

obligations arising from the
arrangement by considering:
(a) the legal form of the separate
vehicle
(b) the terms of the contractual
arrangement, and, if relevant,
(c) other facts and
circumstances
Parties have rights to the assets Parties have rights
and obligations for the liabilities to the net assets

Joint operation Joint venture

Accounting for assets, liabilities, Accounting for an

revenues and expenses in accordance investment using
with the contractual arrangements the equity method
 Financial Statements of Joint Operation

• A joint operator shall recognise in relation to its

interest in a joint operation:
– its assets, including its share of any assets held jointly;
– its liabilities, including its share of any liabilities incurred
jointly;
– its revenue from the sale of its share of the output arising
from the joint operation;
– its share of the revenue from the sale of the output by the
joint operation; and
– its expenses, including its share of any expenses incurred
jointly.
 Financial Statements of Joint Venture

• A joint venturer shall recognise its interest in a joint

venture as an investment and shall account for that
investment using the equity method in accordance
with PSAK 15/IAS 28: Investments in Associates and
Joint Ventures unless the entity is exempted from
applying the equity method as specified in that
standard.
• A party that participates in, but does not have joint
control of, a joint venture shall account for its interest
in the arrangement in accordance with PSAK
55/71/IFRS 9: Financial Instruments.
International Financial Reporting Standards

PSAK 38
Business Combination Under
Common Control (BCUCC)

[[[
Scope
• Diatur di PSAK 38 => akuntansi kombinasi bisnis
entitas sepengendali
• Ruang Lingkup :
– Diterapkan dalam akuntansi kombinasi bisnis entitas
sepengendali yang memenuhi persyaratan kombinasi
bisnis dalam PSAK 22 (revisi 2010): Kombinasi Bisnis.
– Tidak mengatur kombinasi bisnis antara entitas yang
tidak sepengendali atau entitas yang tidak berada di
bawah pengendalian yang sama → PSAK 22

1-50
Definition
• Entitas sepengendali adalah entitas yang secara langsung
atau tidak langsung (melalui satu atau lebih perantara),
mengendalikan atau dikendalikan oleh atau berada di bawah
pengendalian yang sama.

• Kombinasi bisnis entitas sepengendali adalah kombinasi

bisnis yang semua entitas atau bisnis yang bergabung, pada
akhirnya dikendalikan oleh pihak yang sama (baik sebelum
maupun sesudah kombinasi bisnis) dan pengendaliannya
tidak bersifat sementara.

1-51
Business combination under common control
1. Suatu induk perusahaan memindahkan sebagian
aset bersih dari anak perusahaan yang dimiliki
induk perusahaan tersebut menjadi aset induk
perusahaan yang bersangkutan.

2. Induk perusahaan mengalihkan sebagian hak

pemilikannya dalam suatu anak perusahaan ke
anak perusahaan lainnya yang dimiliki oleh induk
perusahaan.
Business combination under common control

3. Suatu induk perusahaan menukar pemilikannya

atas sebagian aset bersih dalam anak perusahaan
yang dimiliki induk perusahaan tersebut dengan
saham tambahan yang diterbitkan oleh anak
perusahaan lainnya (yang tidak dimiliki 100%).
 1-54

Accounting for BCUCC

Transaksi kombinasi bisnis

antara entitas bukan
sehingga
sepengendali, berupa merupakan
transaksi
pengalihan bisnis yang perubahan
tersebut tidak
dilakukan dalam rangka pemilikan
dapat
reorganisasi entitas-entitas dalam arti
menimbulkan
yang berada dalam suatu substansi
laba atau rugi.
kelompok usaha yang ekonomi,
sama,
Accounting for BCUCC (2)

• Transaksi kombinasi bisnis entitas sepengendali tidak

mengakibatkan perubahan substansi ekonomi kepemilikan
atas bisnis yang dipertukarkan=> transaksi tersebut
diakui pada jumlah tercatat berdasarkan Metode
Penyatuan Kepemilikan (Pooling of Interest Method)
• Selisih antara jumlah imbalan yang dialihkan dan jumlah
tercatat dari setiap transaksi kombinasi bisnis entitas
sepengendali=> diakui di ekuitas = > Disajikan dalam
pos Tambahan Modal Disetor.

1-55
 56

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