Overview

IFRS 3 Business Combinations outlines the accounting when an acquirer obtains control of a business (e.g. an acquisition
or merger). Such business combinations are accounted for using the 'acquisition method', which generally requires
assets acquired and liabilities assumed to be measured at their fair values at the acquisition date.

A revised version of IFRS 3 was issued in January 2008 and applies to business combinations occurring in an entity's first
annual period beginning on or after 1 July 2009.

History of IFRS 3

Date Development Comments

July 2001 Project added to IASB agenda History of the project

(carried over from the old IASC)

5 December 2002 Exposure Draft ED 3 Business Combinations and Comment deadline 4 April 2003
related exposure drafts proposing amendments
to IAS 36 and IAS 38 published

31 March 2004 IFRS 3 Business Combinations (2004) and Effective for business combinations
related amended versions of IAS 36 and IAS for which the agreement date is on
38 issued or after 31 March 2004
(IFRS 3 supersedes IAS 22)

29 April 2004 Exposure Draft Combinations by Contract Alone Comment deadline 31 July 2004
or Involving Mutual Entities published
(These proposals were not finalised, but instead
considered as part of the June 2005 exposure
draft)

30 June 2005 Exposure Draft Proposed Amendments to IFRS Comment deadline 28 October 2005
3 published

10 January 2008 IFRS 3 Business Combinations (2008) issued Applies to business combinations for
which the acquisition date is on or
after the beginning of the first
annual reporting period beginning on
or after 1 July 2009

6 May 2010 Amended by Annual Improvements to IFRSs Effective for annual periods
2010 (measurement of non-controlling beginning on or after 1 July 2010
interests, replaced share-based payment
awards, transitional arrangements for
contingent consideration)
 12 December 2013 Amended by Annual Improvements to IFRSs Applicable for business combinations
20102012 Cycle (contingent consideration) for which the acquisition date is on
or after 1 July 2014

12 December 2013 Amended by Annual Improvements to IFRSs Effective for annual periods
20112013 Cycle (scope exception for joint beginning on or after 1 July 2014
ventures)

Amendments under consideration by the IASB

IFRS 3 Definition of a business

IFRS 3/IFRS 11 Remeasurement of previously held interests

Common control transactions

Summary of IFRS 3

Background

IFRS 3 (2008) seeks to enhance the relevance, reliability and comparability of information provided about business
combinations (e.g. acquisitions and mergers) and their effects. It sets out the principles on the recognition and
measurement of acquired assets and liabilities, the determination of goodwill and the necessary disclosures.

IFRS 3 (2008) resulted from a joint project with the US Financial Accounting Standards Board (FASB) and replaced IFRS 3
(2004). FASB issued a similar standard in December 2007 (SFAS 141(R)). The revisions result in a high degree of
convergence between IFRSs and US GAAP in the accounting for business combinations, although some potentially
significant differences remain.

Key definitions

[IFRS 3, Appendix A]

A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes
referred to as 'true mergers' or 'mergers of equals' are also business combinations as that term is used in [IFRS 3]

An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a
return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members
or participants

The date on which the acquirer obtains control of the acquiree

The entity that obtains control of the acquiree

The business or businesses that the acquirer obtains control of in a business combination

Scope

IFRS 3 must be applied when accounting for business combinations, but does not apply to:

The formation of a joint venture* [IFRS 3.2(a)]

The acquisition of an asset or group of assets that is not a business, although general guidance is provided on
how such transactions should be accounted for [IFRS 3.2(b)]

Combinations of entities or businesses under common control (the IASB has a separate agenda project
on common control transactions) [IFRS 3.2(c)]
 Acquisitions by an investment entity of a subsidiary that is required to be measured at fair value through profit
or loss under IFRS 10 Consolidated Financial Statements. [IFRS 3.2A]

* Annual Improvements to IFRSs 20112013 Cycle, effective for annual periods beginning on or after 1 July 2014, amends
this scope exclusion to clarify that is applies to the accounting for the formation of a joint arrangement in the financial
statements of the joint arrangement itself.

Determining whether a transaction is a business combination

IFRS 3 provides additional guidance on determining whether a transaction meets the definition of a business
combination, and so accounted for in accordance with its requirements. This guidance includes:

Business combinations can occur in various ways, such as by transferring cash, incurring liabilities, issuing equity
instruments (or any combination thereof), or by not issuing consideration at all (i.e. by contract alone) [IFRS
3.B5]

Business combinations can be structured in various ways to satisfy legal, taxation or other objectives, including
one entity becoming a subsidiary of another, the transfer of net assets from one entity to another or to a new
entity [IFRS 3.B6]

The business combination must involve the acquisition of a business, which generally has three elements: [IFRS
3.B7]

o Inputs an economic resource (e.g. non-current assets, intellectual property) that creates outputs when
one or more processes are applied to it

o Process a system, standard, protocol, convention or rule that when applied to an input or inputs,
creates outputs (e.g. strategic management, operational processes, resource management)

o Output the result of inputs and processes applied to those inputs.

Method of accounting for business combinations

Acquisition method

The acquisition method (called the 'purchase method' in the 2004 version of IFRS 3) is used for all business
combinations. [IFRS 3.4]

Steps in applying the acquisition method are: [IFRS 3.5]

1. Identification of the 'acquirer'

2. Determination of the 'acquisition date'

3. Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-
controlling interest (NCI, formerly called minority interest) in the acquiree

4. Recognition and measurement of goodwill or a gain from a bargain purchase Identifying an acquirer

The guidance in IFRS 10 Consolidated Financial Statements is used to identify an acquirer in a business combination, i.e.
the entity that obtains 'control' of the acquiree. [IFRS 3.7]

If the guidance in IFRS 10 does not clearly indicate which of the combining entities is an acquirer, IFRS 3 provides
additional guidance which is then considered:

The acquirer is usually the entity that transfers cash or other assets where the business combination is effected
in this manner [IFRS 3.B14]
 The acquirer is usually, but not always, the entity issuing equity interests where the transaction is effected in
this manner, however the entity also considers other pertinent facts and circumstances including: [IFRS 3.B15]

o relative voting rights in the combined entity after the business combination

o the existence of any large minority interest if no other owner or group of owners has a significant voting
interest

o the composition of the governing body and senior management of the combined entity

o the terms on which equity interests are exchanged

The acquirer is usually the entity with the largest relative size (assets, revenues or profit) [IFRS 3.B16]

For business combinations involving multiple entities, consideration is given to the entity initiating the
combination, and the relative sizes of the combining entities. [IFRS 3.B17]

Acquisition date

An acquirer considers all pertinent facts and circumstances when determining the acquisition date, i.e. the date on
which it obtains control of the acquiree. The acquisition date may be a date that is earlier or later than the closing date.
[IFRS 3.8-9]

IFRS 3 does not provide detailed guidance on the determination of the acquisition date and the date identified
should reflect all relevant facts and circumstances. Considerations might include, among others, the date a public
offer becomes unconditional (with a controlling interest acquired), when the acquirer can effect change in the
board of directors of the acquiree, the date of acceptance of an unconditional offer, when the acquirer starts
directing the acquiree's operating and financing policies, or the date competition or other authorities provide
necessarily clearances.

Acquired assets and liabilities

IFRS 3 establishes the following principles in relation to the recognition and measurement of items arising in a business
combination:

Recognition principle. Identifiable assets acquired, liabilities assumed, and non-controlling interests in the
acquiree, are recognised separately from goodwill [IFRS 3.10]

Measurement principle. All assets acquired and liabilities assumed in a business combination are measured at
acquisition-date fair value. [IFRS 3.18]

Exceptions to the recognition and measurement principles

The following exceptions to the above principles apply:

Contingent liabilities the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent
Assets do not apply to the recognition of contingent liabilities arising in a business combination [IFRS 3.22-
23]

Income taxes the recognition and measurement of income taxes is in accordance with IAS 12 Income
Taxes [IFRS 3.24-25]
 Employee benefits assets and liabilities arising from an acquiree's employee benefits arrangements are
recognised and measured in accordance with IAS 19 Employee Benefits (2011) [IFRS 2.26]

Indemnification assets - an acquirer recognises indemnification assets at the same time and on the same
basis as the indemnified item [IFRS 3.27-28]

Reacquired rights the measurement of reacquired rights is by reference to the remaining contractual
term without renewals [IFRS 3.29]

Share-based payment transactions - these are measured by reference to the method in IFRS 2 Share-
based Payment

Assets held for sale IFRS 5 Non-current Assets Held for Sale and Discontinued Operations is applied in
measuring acquired non-current assets and disposal groups classified as held for sale at the acquisition
date.

In applying the principles, an acquirer classifies and designates assets acquired and liabilities assumed on the basis of the
contractual terms, economic conditions, operating and accounting policies and other pertinent conditions existing at the
acquisition date. For example, this might include the identification of derivative financial instruments as hedging
instruments, or the separation of embedded derivatives from host contracts.[IFRS 3.15] However, exceptions are made
for lease classification (between operating and finance leases) and the classification of contracts as insurance contracts,
which are classified on the basis of conditions in place at the inception of the contract. [IFRS 3.17]

Acquired intangible assets must be recognised and measured at fair value in accordance with the principles if it is
separable or arises from other contractual rights, irrespective of whether the acquiree had recognised the asset prior to
the business combination occurring. This is because there is always sufficient information to reliably measure the fair
value of these assets. [IAS 38.33-37] There is no 'reliable measurement' exception for such assets, as was present under
IFRS 3 (2004).

Goodwill

Goodwill is measured as the difference between:

the aggregate of (i) the value of the consideration transferred (generally at fair value), (ii) the amount of any
non-controlling interest (NCI, see below), and (iii) in a business combination achieved in stages (see below), the
acquisition-date fair value of the acquirer's previously-held equity interest in the acquiree, and

the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed (measured
in accordance with IFRS 3). [IFRS 3.32]

This can be written in simplified equation form as follows:

Goodwill = Consideratio + Amount of non- + Fair value of previous - Net assets

n transferred controlling interests equity interests recognised

If the difference above is negative, the resulting gain is a bargain purchase in profit or loss, which may arise in
circumstances such as a forced seller acting under compulsion. [IFRS 3.34-35] However, before any bargain purchase
gain is recognised in profit or loss, the acquirer is required to undertake a review to ensure the identification of assets
and liabilities is complete, and that measurements appropriately reflect consideration of all available information. [IFRS
3.36]
Choice in the measurement of non-controlling interests (NCI)

IFRS 3 allows an accounting policy choice, available on a transaction by transaction basis, to measure non-controlling
interests (NCI) either at: [IFRS 3.19]

fair value (sometimes called the full goodwill method), or

the NCI's proportionate share of net assets of the acquiree.

The choice in accounting policy applies only to present ownership interests in the acquiree that entitle holders to a
proportionate share of the entity's net assets in the event of a liquidation (e.g. outside holdings of an acquiree's ordinary
shares). Other components of non-controlling interests at must be measured at acquisition date fair values or in
accordance with other applicable IFRSs (e.g. share-based payment transactions accounted for under IFRS 2 Share-based
Payment). [IFRS 3.19]

Example

P pays 800 to acquire an 80% interest in the ordinary shares of S. The aggregated fair value of 100% of S's
identifiable assets and liabilities (determined in accordance with the requirements of IFRS 3) is 600, and the fair
value of the non-controlling interest (the remaining 20% holding of ordinary shares) is 185.

The measurement of the non-controlling interest, and its resultant impacts on the determination of goodwill,
under each option is illustrated below:

NCI based on NCI based on

fair value net assets

Consideration transferred 800 800

Non-controlling interest 185 (1) 120 (2)

985 920

Net assets (600) (600)

Goodwill 385 320

(1) The fair value of the 20% non-controlling interest in S will not necessarily be proportionate to the price paid by
P for its 80% interest, primarily due to any control premium or discount [IFRS 3.B45]

(2) Calculated as 20% of the fair value of the net assets of 600.

Business combination achieved in stages (step acquisitions)

Prior to control being obtained, an acquirer accounts for its investment in the equity interests of an acquiree in
accordance with the nature of the investment by applying the relevant standard, e.g. IAS 28 Investments in Associates
and Joint Ventures (2011), IFRS 11 Joint Arrangements, IAS 39 Financial Instruments: Recognition and
Measurement or IFRS 9 Financial Instruments. As part of accounting for the business combination, the acquirer
remeasures any previously held interest at fair value and takes this amount into account in the determination of
goodwill as noted above [IFRS 3.32] Any resultant gain or loss is recognised in profit or loss or other comprehensive
income as appropriate. [IFRS 3.42]

The accounting treatment of an entity's pre-combination interest in an acquiree is consistent with the view that the
obtaining of control is a significant economic event that triggers a remeasurement. Consistent with this view, all of the
assets and liabilities of the acquiree are fully remeasured in accordance with the requirements of IFRS 3 (generally at fair
value). Accordingly, the determination of goodwill occurs only at the acquisition date. This is different to the accounting
for step acquisitions under IFRS 3(2004).

Measurement period

If the initial accounting for a business combination can be determined only provisionally by the end of the first reporting
period, the business combination is accounted for using provisional amounts. Adjustments to provisional amounts, and
the recognition of newly identified asset and liabilities, must be made within the 'measurement period' where they
reflect new information obtained about facts and circumstances that were in existence at the acquisition date. [IFRS
3.45] The measurement period cannot exceed one year from the acquisition date and no adjustments are permitted
after one year except to correct an error in accordance with IAS 8. [IFRS 3.50]

Related transactions and subsequent accounting

General principlesIn general:

transactions that are not part of what the acquirer and acquiree (or its former owners) exchanged in the
business combination are identified and accounted for separately from business combination

the recognition and measurement of assets and liabilities arising in a business combination after the initial
accounting for the business combination is dealt with under other relevant standards, e.g. acquired inventory is
subsequently accounted under IAS 2 Inventories. [IFRS 3.54]

When determining whether a particular item is part of the exchange for the acquiree or whether it is separate from the
business combination, an acquirer considers the reason for the transaction, who initiated the transaction and the timing
of the transaction. [IFRS 3.B50]

Contingent consideration

Contingent consideration must be measured at fair value at the time of the business combination and is taken into
account in the determination of goodwill. If the amount of contingent consideration changes as a result of a post-
acquisition event (such as meeting an earnings target), accounting for the change in consideration depends on whether
the additional consideration is classified as an equity instrument or an asset or liability: [IFRS 3.58]

If the contingent consideration is classified as an equity instrument, the original amount is not remeasured

If the additional consideration is classified as an asset or liability that is a financial instrument, the contingent
consideration is measured at fair value and gains and losses are recognised in either profit or loss or other
comprehensive income in accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments:
Recognition and Measurement

If the additional consideration is not within the scope of IFRS 9 (or IAS 39), it is accounted for in accordance
with IAS 37 Provisions, Contingent Liabilities and Contingent Assets or other IFRSs as appropriate.

Note: Annual Improvements to IFRSs 20102012 Cycle changes these requirements for business combinations for which
the acquisition date is on or after 1 July 2014. Under the amended requirements, contingent consideration that is
classified as an asset or liability is measured at fair value at each reporting date and changes in fair value are recognised
in profit or loss, both for contingent consideration that is within the scope of IFRS 9/IAS 39 or otherwise.
Where a change in the fair value of contingent consideration is the result of additional information about facts and
circumstances that existed at the acquisition date, these changes are accounted for as measurement period adjustments
if they arise during the measurement period (see above). [IFRS 3.58]

Acquisition costs

Costs of issuing debt or equity instruments are accounted for under IAS 32 Financial Instruments:
Presentation and IAS 39 Financial Instruments: Recognition and Measurement/IFRS 9 Financial Instruments. All other
costs associated with an acquisition must be expensed, including reimbursements to the acquiree for bearing some of
the acquisition costs. Examples of costs to be expensed include finder's fees; advisory, legal, accounting, valuation and
other professional or consulting fees; and general administrative costs, including the costs of maintaining an internal
acquisitions department. [IFRS 3.53]

Pre-existing relationships and reacquired rights

If the acquirer and acquiree were parties to a pre-existing relationship (for instance, the acquirer had granted the
acquiree a right to use its intellectual property), this must must be accounted for separately from the business
combination. In most cases, this will lead to the recognition of a gain or loss for the amount of the consideration
transferred to the vendor which effectively represents a 'settlement' of the pre-existing relationship. The amount of the
gain or loss is measured as follows:

for pre-existing non-contractual relationships (for example, a lawsuit): by reference to fair value

for pre-existing contractual relationships: at the lesser of (a) the favourable/unfavourable contract position and
(b) any stated settlement provisions in the contract available to the counterparty to whom the contract is
unfavourable. [IFRS 3.B51-53]

However, where the transaction effectively represents a reacquired right, an intangible asset is recognised and
measured on the basis of the remaining contractual term of the related contract excluding any renewals. The asset is
then subsequently amortised over the remaining contractual term, again excluding any renewals. [IFRS 3.55]

Contingent liabilities

Until a contingent liability is settled, cancelled or expired, a contingent liability that was recognised in the initial
accounting for a business combination is measured at the higher of the amount the liability would be recognised
under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and the amount less accumulated amortisation
under IAS 18 Revenue. [IFRS 3.56]

Contingent payments to employees and shareholders

As part of a business combination, an acquirer may enter into arrangements with selling shareholders or employees. In
determining whether such arrangements are part of the business combination or accounted for separately, the acquirer
considers a number of factors, including whether the arrangement requires continuing employment (and if so, its term),
the level or remuneration compared to other employees, whether payments to shareholder employees are incremental
to non-employee shareholders, the relative number of shares owns, linkages to valuation of the acquiree, how the
consideration is calculated, and other agreements and issues. [IFRS 3.B55]

Where share-based payment arrangements of the acquiree exist and are replaced, the value of such awards must be
apportioned between pre-combination and post-combination service and accounted for accordingly. [IFRS 3.B56-B62B]

Indemnification assets

Indemnification assets recognised at the acquisition date (under the exceptions to the general recognition and
measurement principles noted above) are subsequently measured on the same basis of the indemnified liability or asset,
subject to contractual impacts and collectibility. Indemnification assets are only derecognised when collected, sold or
when rights to it are lost. [IFRS 3.57]
Other issues

In addition, IFRS 3 provides guidance on some specific aspects of business combinations including:

business combinations achieved without the transfer of consideration, e.g. 'dual listed' and 'stapled'
arrangements [IFRS 3.43-44]

reverse acquisitions [IFRS 3.B19]

identifying intangible assets acquired [IFRS 3.B31-34]

Disclosure

Disclosure of information about current business combinations

An acquirer is required to disclose information that enables users of its financial statements to evaluate the nature and
financial effect of a business combination that occurs either during the current reporting period or after the end of the
period but before the financial statements are authorised for issue. [IFRS 3.59]

Among the disclosures required to meet the foregoing objective are the following: [IFRS 3.B64-B66]

name and a description of the acquiree

acquisition date

percentage of voting equity interests acquired

primary reasons for the business combination and a description of how the acquirer obtained control of the
acquiree

description of the factors that make up the goodwill recognised

qualitative description of the factors that make up the goodwill recognised, such as expected synergies from
combining operations, intangible assets that do not qualify for separate recognition

acquisition-date fair value of the total consideration transferred and the acquisition-date fair value of each
major class of consideration

details of contingent consideration arrangements and indemnification assets

details of acquired receivables

the amounts recognised as of the acquisition date for each major class of assets acquired and liabilities assumed

details of contingent liabilities recognised

total amount of goodwill that is expected to be deductible for tax purposes

details about any transactions that are recognised separately from the acquisition of assets and assumption of
liabilities in the business combination

information about a bargain purchase

information about the measurement of non-controlling interests

details about a business combination achieved in stages

information about the acquiree's revenue and profit or loss

information about a business combination whose acquisition date is after the end of the reporting period but
before the financial statements are authorised for issue
Disclosure of information about adjustments of past business combinations

An acquirer is required to disclose information that enables users of its financial statements to evaluate the financial
effects of adjustments recognised in the current reporting period that relate to business combinations that occurred in
the period or previous reporting periods. [IFRS 3.61]

Among the disclosures required to meet the foregoing objective are the following: [IFRS 3.B67]

details when the initial accounting for a business combination is incomplete for particular assets, liabilities, non-
controlling interests or items of consideration (and the amounts recognised in the financial statements for the
business combination thus have been determined only provisionally)

follow-up information on contingent consideration

follow-up information about contingent liabilities recognised in a business combination

a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period, with
various details shown separately

the amount and an explanation of any gain or loss recognised in the current reporting period that both:

o relates to the identifiable assets acquired or liabilities assumed in a business combination that was
effected in the current or previous reporting period, and

o is of such a size, nature or incidence that disclosure is relevant to understanding the combined entity's
financial statements.
Overview

IFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of
consolidated financial statements, requiring entities to consolidate entities it controls. Control requires exposure or
rights to variable returns and the ability to affect those returns through power over an investee.

IFRS 10 was issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.

History of IFRS 10

Date Development Comments

April 2002 Project on consolidation added to the IASB's

agenda (project history)

18 December 2008 ED 10 Consolidated Financial Statements published Comment deadline 20 March

2009

29 September 2010 Staff draft of IFRS X Consolidated Financial

Statements published

12 May 2011 IFRS 10 Consolidated Financial Effective for annual periods

Statements published beginning on or after 1 January
2013

28 June 2012 Amended by Consolidated Financial Statements, Effective for annual periods
Joint Arrangements and Disclosure of Interests in beginning on or after 1 January
Other Entities: Transition Guidance (project 2013
history)

31 October 2012 Amended by Investment Entities (Amendments to Effective for annual periods
IFRS 10, IFRS 12 and IAS 27) (project history) beginning on or after 1 January
2014

11 September 2014 Amended by Sale or Contribution of Assets Effective for annual periods
between an Investor and its Associate or Joint beginning on or after 1 January
Venture (Amendments to IFRS 10 and IAS 28) 2016 deferred indefinitely (see
below)

18 December 2014 Amended by Investment Entities: Applying the Effective for annual periods
Consolidation Exception (Amendments to IFRS 10, beginning on or after 1 January
IFRS 12 and IAS 28) (project history) 2016

17 December 2015 Amended by Effective Date of Amendments to IFRS defer the effective date of the
10 and IAS 28 September 2014 amendments to
these standards indefinitely
Related Interpretations

IFRS 10 superseded SIC-12 Consolidation Special Purpose Entities

Amendments under consideration by the IASB

Common control transactions

IFRS 13 Unit of account

In addition, the IASB has signalled an intention to conduct a post-implementation review, commencing in 2016.

Publications and resources

IFRS in Focus Newsletter IASB issues new standard on consolidation summarising the requirements of IFRS 10
(PDF 82k, May 2011)

Deloitte IFRS Podcast (May 2011, 12 minutes, 8mb)

Effect analysis for IFRS 10 and IFRS 12 (link to IASB website)

Summary of IFRS 10

Objective

The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities. [IFRS 10:1]

The Standard: [IFRS 10:1]

requires a parent entity (an entity that controls one or more other entities) to present consolidated financial
statements

defines the principle of control, and establishes control as the basis for consolidation

set out how to apply the principle of control to identify whether an investor controls an investee and therefore
must consolidate the investee

sets out the accounting requirements for the preparation of consolidated financial statements

defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment
entity*.

* Added by Investment Entities amendments, effective 1 January 2014.

Key definitions

[IFRS 10:Appendix A]

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent
and its subsidiaries are presented as those of a single economic entity

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 An entity that:

1. obtains funds from one or more investors for the purpose of providing those investor(s) with investment
management services
 2. commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation,
investment income, or both, and

3. measures and evaluates the performance of substantially all of its investments on a fair value basis.

An entity that controls one or more entities

Existing rights that give the current ability to direct the relevant activities

Rights designed to protect the interest of the party holding those rights without giving that party power over the entity
to which those rights relate

Activities of the investee that significantly affect the investee's returns

* Added by Investment Entities amendments, effective 1 January 2014.

Control

An investor determines whether it is a parent by assessing whether it controls one or more investees. An investor
considers all relevant facts and circumstances when assessing whether it controls an investee. An investor controls an
investee when it 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. [IFRS 10:5-6; IFRS 10:8]

An investor controls an investee if and only if the investor has all of the following elements: [IFRS 10:7]

power over the investee, i.e. the investor has existing rights that give it the ability to direct the relevant activities
(the activities that significantly affect the investee's returns)

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.

Power arises from rights. Such rights can be straightforward (e.g. through voting rights) or be complex (e.g. embedded in
contractual arrangements). An investor that holds only protective rights cannot have power over an investee and so
cannot control an investee [IFRS 10:11, IFRS 10:14].

An investor must be exposed, or have rights, to variable returns from its involvement with an investee to control the
investee. Such returns must have the potential to vary as a result of the investee's performance and can be positive,
negative, or both. [IFRS 10:15]

A parent must not only have power over an investee and exposure or rights to variable returns from its involvement
with the investee, a parent must also have the ability to use its power over the investee to affect its returns from its
involvement with the investee. [IFRS 10:17].

When assessing whether an investor controls an investee an investor with decision-making rights determines whether it
acts as principal or as an agent of other parties. A number of factors are considered in making this assessment. For
instance, the remuneration of the decision-maker is considered in determining whether it is an agent. [IFRS 10:B58, IFRS
10:B60]

Accounting requirements

Preparation of consolidated financial statements

A parent prepares consolidated financial statements using uniform accounting policies for like transactions and other
events in similar circumstances. [IFRS 10:19]
However, a parent need not present consolidated financial statements if it meets all of the following conditions: [IFRS
10:4(a)]

it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and its other owners,
including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not
presenting consolidated financial statements

its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an
over-the-counter market, including local and regional markets)

it did not file, nor is it in the process of filing, its financial statements with a securities commission or other
regulatory organisation for the purpose of issuing any class of instruments in a public market, and

its ultimate or any intermediate parent of the parent produces financial statements available for public use that
comply with IFRSs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in
accordance with IFRS 10.*

* Fair value measurement clause added by Investment Entities: Applying the Consolidation Exception (Amendments to
IFRS 10, IFRS 12 and IAS 28) amendments, effective 1 January 2016.

Investment entities are prohibited from consolidating particular subsidiaries (see further information below).

Furthermore, post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee
Benefits applies are not required to apply the requirements of IFRS 10. [IFRS 10:4B]

Consolidation procedures

Consolidated financial statements: [IFRS 10:B86]

combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its
subsidiaries

offset (eliminate) the carrying amount of the parent's investment in each subsidiary and the parent's portion of
equity of each subsidiary (IFRS 3 Business Combinations explains how to account for any related goodwill)

eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions
between entities of the group (profits or losses resulting from intragroup transactions that are recognised in
assets, such as inventory and fixed assets, are eliminated in full).

A reporting entity includes the income and expenses of a subsidiary in the consolidated financial statements from the
date it gains control until the date when the reporting entity ceases to control the subsidiary. Income and expenses of
the subsidiary are based on the amounts of the assets and liabilities recognised in the consolidated financial statements
at the acquisition date. [IFRS 10:B88]

The parent and subsidiaries are required to have the same reporting dates, or consolidation based on additional
financial information prepared by subsidiary, unless impracticable. Where impracticable, the most recent financial
statements of the subsidiary are used, adjusted for the effects of significant transactions or events between the
reporting dates of the subsidiary and consolidated financial statements. The difference between the date of the
subsidiary's financial statements and that of the consolidated financial statements shall be no more than three months
[IFRS 10:B92, IFRS 10:B93]

Non-controlling interests (NCIs)

A parent presents non-controlling interests in its consolidated statement of financial position within equity, separately
from the equity of the owners of the parent. [IFRS 10:22]
A reporting entity attributes the profit or loss and each component of other comprehensive income to the owners of the
parent and to the non-controlling interests. The proportion allocated to the parent and non-controlling interests are
determined on the basis of present ownership interests. [IFRS 10:B94, IFRS 10:B89]

The reporting entity also attributes total comprehensive income to the owners of the parent and to the non-controlling
interests even if this results in the non-controlling interests having a deficit balance. [IFRS 10:B94]

Changes in ownership interests

Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary
are equity transactions (i.e. transactions with owners in their capacity as owners). When the proportion of the equity
held by non-controlling interests changes, the carrying amounts of the controlling and non-controlling interests area
adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which
the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly
in equity and attributed to the owners of the parent.[IFRS 10:23, IFRS 10:B96]

If a parent loses control of a subsidiary, the parent [IFRS 10:25]:

derecognises the assets and liabilities of the former subsidiary from the consolidated statement of financial
position

recognises any investment retained in the former subsidiary when control is lost and subsequently accounts for
it and for any amounts owed by or to the former subsidiary in accordance with relevant IFRSs. That retained
interest is remeasured and the remeasured value is regarded as the fair value on initial recognition of a financial
asset in accordance with IFRS 9 Financial Instruments or, when appropriate, the cost on initial recognition of an
investment in an associate or joint venture

recognises the gain or loss associated with the loss of control attributable to the former controlling interest.

If a parent loses control of a subsidiary that does not contain a business in a transaction with an associate or a joint
venture gains or losses resulting from those transactions are recognised in the parent's profit or loss only to the extent
of the unrelated investors' interests in that associate or joint venture.*

* Added by Sale or Contribution of Assets between an Investor and its Associate or Joint Venture amendments, effective
1 January 2016, however, the effective date of the amendment was later deferred indefinitely.

Investment entities consolidation exemption

[Note: The investment entity consolidation exemption was introduced by Investment Entities, issued on 31 October 2012
and effective for annual periods beginning on or after 1 January 2014.]

IFRS 10 contains special accounting requirements for investment entities. Where an entity meets the definition of an
'investment entity' (see above), it does not consolidate its subsidiaries, or apply IFRS 3 Business Combinations when it
obtains control of another entity. [IFRS 10:31]

An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including
its purpose and design. IFRS 10 provides that an investment entity should have the following typical characteristics
[IFRS 10:28]:

it has more than one investment

it has more than one investor

it has investors that are not related parties of the entity

it has ownership interests in the form of equity or similar interests.

The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified as an
investment entity.

An investment entity is required to measure an investment in a subsidiary at fair value through profit or loss in
accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.
[IFRS 10:31]

However, an investment entity is still required to consolidate a subsidiary where that subsidiary provides services that
relate to the investment entitys investment activities. [IFRS 10:32]*

* Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) clarifies,
effective 1 January 2016, that this relates to a subsidiary that is not itself an investment entity and whose main purpose
and activities are providing services that relate to the investment entity's investment activities.

Because an investment entity is not required to consolidate its subsidiaries, intragroup related party transactions and
outstanding balances are not eliminated [IAS 24.4, IAS 39.80].

Special requirements apply where an entity becomes, or ceases to be, an investment entity. [IFRS 10:B100-B101]

The exemption from consolidation only applies to the investment entity itself. Accordingly, a parent of an investment
entity is required to consolidate all entities that it controls, including those controlled through an investment entity
subsidiary, unless the parent itself is an investment entity. [IFRS 10:33]

Disclosure

There are no disclosures specified in IFRS 10. Instead, IFRS 12 Disclosure of Interests in Other Entities outlines the
disclosures required.

Applicability and early adoption

Note: This section has been updated to reflect the amendments to IFRS 10 made in June 2012 and October 2012.

IFRS 10 is applicable to annual reporting periods beginning on or after 1 January 2013 [IFRS 10:C1].

Retrospective application is generally required in accordance with IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors [IFRS 10:C2]. However, an entity is not required to make adjustments to the accounting for its
involvement with entities that were previously consolidated and continue to be consolidated, or entities that were
previously unconsolidated and continue not to be consolidated at the date of initial application of the IFRS [IFRS 10:C3].

Furthermore, an entity is not required to present the quantitative information required by paragraph 28(f) of IAS 8 for
the annual period immediately preceding the date of initial application of the standard (the beginning of the annual
reporting period for which IFRS 10 is first applied) [IFRS 10:C2A-C2B]. However, an entity may choose to present
adjusted comparative information for earlier reporting periods, any must clearly identify any unadjusted comparative
information and explain the basis on which the comparative information has been prepared [IFRS 10.C6A-C6B].

IFRS 10 prescribes modified accounting on its first application in the following circumstances:

an entity consolidates an entity not previously consolidated [IFRS 10:C4-C4C]

an entity no longer consolidates an entity that was previously consolidated [IFRS 10:C5-C5A]

in relation to certain amendments to IAS 27 made in 2008 that have been carried forward into IFRS 10 [IFRS
10:C6].

An entity may apply IFRS 10 to an earlier accounting period, but if doing so it must disclose the fact that is has early
adopted the standard and also apply:

IFRS 11 Joint Arrangements

 IFRS 12 Disclosure of Interests in Other Entities

IAS 27 Separate Financial Statements (as amended in 2011)

IAS 28 Investments in Associates and Joint Ventures (as amended in 2011).

The amendments made by Investment Entities are applicable to annual reporting periods beginning on or after 1 January
2014 [IFRS 10:C1B]. At the date of initial application of the amendments, an entity assesses whether it is an investment
entity on the basis of the facts and circumstances that exist at that date and additional transitional provisions apply [IFRS
10:C3BC3F]