IFRS 10 Consolidated Financial Statements introduces a new control model for determining whether an investee should be consolidated. This new approach should be applied to all investees, including special purpose entities currently in the scope of SIC-12.

Overview of the standard          


  • The standard introduces a single control model to assess whether to consolidate all types of investee.          
  • 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.          
  • In assessing whether it has power over an investee, the investor should consider:
    1. substantive potential voting rights as opposed to currently exercisable potential voting rights under IAS 27;   and 
    2. whether it has de facto control.
  • The standard introduces the concept of delegated power. A number of indicators are provided to analyse whether the decision maker is acting as a principal or as an agent on behalf of other investors when directing the activities of an investee.          
  • In December 2012, IFRS 10, IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011) were endorsed for use in the EU for financial years starting on or after 1 January 2014. Early adoption is permitted.          
  • The IASB has issued Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12). These amendments simplify the transition to these new standards by: 
    1.   requiring the consolidation conclusion to be tested at the start of the year in which IFRS 10 is adopted; 
    2.   removing the requirement to disclose the impact of the change in accounting policy for the year in which the  standard is adopted; and
    3.   requiring disclosures in respect of unconsolidated structured entities to be provided only prospectively.    


In April 2013, the amendments were endorsed for use in the EU for financial years starting on or after 1 January 2014. Early adoption is permitted. 


Practical Issues 


  • Variability in returns is a much broader concept than ownership-type benefits and is not solely a risks and rewards analysis. As a result it may impact the control conclusion.          
  • The single control model could change the control conclusion, particularly for SPEs currently in the scope of SIC-12, and will often require significant judgement.          
  • Assessing control, based on substantive potential voting rights, is likely to change the control conclusion in some cases: currently exercisable potential voting rights might not be considered substantive and vice versa.          
  • More investees could be consolidated under the de facto control model if an entity currently assesses the ability to control on a legal or contractual basis under IAS 27.          
  • Entities in the funds sector, as well as asset managers, are likely to be particularly impacted by the agent versus principal guidance.          

Forthcoming developments          
On 31 May 2012 the IASB issued DI/2012/2 Put Options Written on Non-Controlling Interests (NCI). This proposes that all subsequent changes in the carrying amount of NCI put liabilities should be recognised in profit or loss in accordance with IAS39/IFRS 9. This draft Interpretation is discussed in more detail in our In the Headlines: The Subsequent Measurement of NCI Put Liabilities publication.

On 13 December 2012 the IASB issued proposals for a narrow scope amendment to IFRS 10 to address an acknowledged inconsistency between IFRS 10 and IAS 28 (2011) Investments in associates and joint ventures (formerly SIC 13) in respect of the sale or contribution of a subsidiary to an associate or joint venture. The proposals are discussed in more detail in our publication, In the Headlines: Transfer of a subsidiary to an associate or JV.          
 IFRS Publications          



Aura Giurcaneanu

Aura Giurcaneanu

Partner, Audit & Assurance

+40 (372) 377 800

Angela Manolache

Angela Manolache

Partner, Advisory

+40 (372) 377 800

Related links

For quick access to a range of accounting, auditing and financial reporting guidance and literature, please visit KPMG's Accounting Research Online.