Difference between Ind AS 27 on Consolidated and Separate Financial Statements and existing AS 21, on Consolidated Financial Statements
(i) Ind AS 27 makes the preparation of Consolidated Financial Statements mandatory for a parent. Existing AS 21 does not mandate the preparation of Consolidated Financial Statements by a parent. As far as separate financial statements are concerned, as per existing AS 21, Consolidated Financial Statements are prepared in addition to separate financial statements. However, Ind AS 27 does not mandate preparation of separate financial statements.
(ii) Ind AS 27 provides guidance for accounting for investments in subsidiaries, jointly controlled entities and associates in preparing the separate financial statements. Existing AS 21 does not deal with the same.
(iii) As per existing AS 21, subsidiary is excluded from consolidation when control is intended to be temporary or when subsidiary operates under severe long term restrictions. Ind AS 27 does not give any such exemption from consolidation except that if a subsidiary meets the criteria to be classified as held for sale, in that case it shall be accounted for as per Ind AS 105, Noncurrent Assets held for Sale and Discontinued Operations. Existing AS 21 explains where an entity owns majority of voting power because of ownership and all the shares are held as stockin- trade, whether this amounts to temporary control. Existing AS 21 also explains the term ‘near future’. However, Ind AS 27 does not explain the same, as these are not relevant.
(iv) As per the definition given in Ind AS 27, control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. However, the definition of control given in the existing AS 21 is rule-based, which requires the ownership, directly or indirectly through subsidiary(ies), of more than half of the voting power of an enterprise; or control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities. Existing AS 21 also provides clarification regarding consolidation in case an entity is controlled by two entities. No clarification has been provided in this regard in Ind AS 27, keeping in view that as per the definition of control given in Ind AS 27, control of an entity could be with one entity only.
(v) For considering share ownership, potential equity shares of the investee held by investor are not taken into account as per existing AS 21. However, as per Ind AS 27, existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity has control over the subsidiary.
(vi) As per existing AS 21 minority interest should be presented in the consolidated balance sheet separately from liabilities and equity of the parent’s shareholders. However, as per Ind AS 27 non-controlling interests shall be presented in the consolidated balance sheet within equity separately from the parent shareholders’ equity.
(vii) Existing AS 21 permits the use of financial statements of the subsidiaries drawn upto a date different from the date of financial statements of the parent after making adjustments regarding effects of significant transactions. The difference between the reporting dates should not be more than six months. As per Ind AS 27, the length of difference in the reporting dates of the parent and the subsidiary should not be more than three months.
(viii) Both the existing AS 21 and Ind AS 27, require the use of uniform accounting policies. However, existing AS 21 specifically states that if it is not practicable to use uniform accounting policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied. However, Ind AS 27 does not recognise the situation of impracticability.
(ix) Ind AS 27 provides detailed guidance as compared to existing AS 21 regarding accounting in case of loss of control over subsidiary.
(x) Existing AS 21 provides clarification regarding inclusion of notes appearing in the separate financial statements of the parent and its subsidiaries in the consolidated financial statements. However, Ind AS 27 does not provide any clarification in this regard.
(xi) Existing AS 21 provides clarification regarding accounting for taxes on income in the consolidated financial statements. However, the same has not been dealt with in Ind AS 27, as the same is dealt with in Ind AS 12 Income taxes.
(xii) Existing AS 21 provides clarification regarding disclosure of parent’s share in post-acquisition reserves of a subsidiary. The same has not been dealt with in Ind AS 27.
(xiii) Existing AS 21 does not provide guidance on consolidation of Special Purpose Entities (SPEs), whereas Appendix A of Ind AS 27 provides guidance on the same. (ICAI)