IPSAS 6 is based on IAS 27 Consolidated and Separate Financial Statements (Revised 2003).
IPSAS 6 Consolidated and Separate Financial Statements prescribes when an entity must consolidate another entity and includes guidance to assess control. IPSAS 6 furthermore includes guidance for the preparation of separate financial statements and disclosures.
IPSAS 6 was issued in May 2000 and applies to annual periods beginning on or after 1 January 2008.
History of IPSAS 6
Annual periods beginning on or after 1 January 2008
Refer to IFAC website here
Summary of IPSAS 6 Consolidated and Separate Financial Statements
This standard applies to entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 6.1]. IPSAS 6 applies to all public sector entities other than GBEs [IPSAS 6.4].
IPSAS 6 shall be applied:
• for the preparation and presentation of the consolidated financial statements for an economic entity [IPSAS 6.1]
• in accounting for controlled entities, jointly controlled entities, associates and when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements [IPSAS 6.3].
Key definitions [IPSAS 6.7]
Consolidated financial statements: the financial statements of an economic entity presented as those of a single entity.
Controlled entity: an entity, including an unincorporated entity such as a partnership, which is under the control of another entity (known as the controlling entity).
Controlling entity: an entity that has one or more controlled entities.
Separate financial statements: presented by a controlling entity, an investor in an associate, or a venturer in a jointly controlled entity, in which the investments are accounted for on the basis of the direct net assets/equity interest rather than on the basis of the reported results and net assets of the investees.
Control: The power to govern the financial and operating policies of another entity so as to benefit from its activities [IPSAS 2.8].
Economic entity: group of entities comprising a controlling entity and one or more controlled entities [IPSAS 1.7]
Identification of controlled entities
Control is a matter of judgment based on the definition of control and the particular circumstances of each specific case [IPSAS 6.28]. The two elements of control have to be taken into account these are [IPSAS 6.28]:
• the power element, the power govern the financial and operating policies of the entity
• the benefit element, ability to control the entity to benefit from its activities
The power to control does not require the majority of the shareholding [IPSAS 6.30] or the responsibility for the management [IPSAS 6.31]. The power to control must be presently exercisable (i.e. it is derived from a legislation or an agreement).
Control is presumed to exists in case of following power indicators [IPSAS 6.39]:
• the entity has, directly or indirectly through controlled entities, ownership of a majority voting interest in the other entity.
• the entity has the power, either granted by or exercised within existing legislation, to appoint or remove a majority of the members of the board of directors or equivalent governing body, and control of the other entity is by that board or by that body.
• the entity has the power to cast, or regulate the casting of, a majority of the votes that are likely to be cast at a general meeting of the other entity.
• the entity has the power to cast the majority of votes at meetings of the board of directors or equivalent governing body, and control of the other entity is by that board or by that body.
Unless there is clear evidence that another entity holds control.
Control is presumed to exists in case of following benefit indicators [IPSAS 6.39]:
• the entity has the power to dissolve the other entity and obtain a significant level of the residual economic benefits or bear significant obligations. For example the benefit condition may be met if an entity had responsibility for the residual liabilities of another entity.
• the entity has the power to extract distributions of assets from the other entity, and/or may be liable for certain obligations of the other entity.
Unless there is clear evidence that another entity holds control.
Presentation of consolidated financial statements
A controlling entity should present consolidated financial statements in which it consolidates its controlled entities [IPSAS 6.15] – except if:
The controlling entity is not required to (but is allowed) present consolidated financial statements if and only if [IPSAS 6.16]:
1) the controlling entity is
o itself a wholly-owned controlled entity and users of such financial statements are unlikely to exist or their information needs are met by its controlling entity’s consolidated financial statements;
o a partially-owned controlled entity of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the controlling entity not presenting consolidated financial statements
2) The controlling entity’s 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)
3) the controlling entity did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market
4) the ultimate or any intermediate controlling entity of the controlling entity produces consolidated financial statements available for public use that comply with IPSASs.
In certain circumstances, when an economic entity includes a number of intermediate controlling entities, the information needs of certain users may not be satisfied by the financial statements at a whole-of-government level and the government may have regulated the financial reporting of such entities [IPSAS 6.17]. When there are no specific (legal) reporting requirements for intermediate controlling entities for which users are likely to exist, these entities should prepare and publish consolidated financial statements [IPSAS 6.18].
The consolidated statements should include all controlled entities [IPSAS 6.20], except when [IPSAS 6.21]:
1) control is intended to be temporary, i.e. the entity is acquired and held exclusively with a view to sell within 12 months from acquisition
2) management seeks actively a buyer
Such entities are accounted for as a financial instrument according to IPSAS 28, 29 and 30 [IPSAS 6.22].
There no exemption for following entities:
• entities with an activity with different nature from are not excluded from the consolidation [IPSAS 6.27].
• a controlled entity that had previously been excluded from consolidated as it was held exclusively for sale, but not sold within 12 months. It should be consolidated from the date of acquisition, with possible restatement of earlier periods [IPSAS 6.24],unless only approval of the sale by regulators or other is pending and completion of the sale is expected shortly after the reporting date [IPSAS 6.25].
• entities held by a venture capitalist, mutual fund, unit trust or similar are not excluded from consolidation [IPSAS 6.26].
Balances, transactions, revenues and expenses between entities within the economic entity should be eliminated in full [IPSAS 6.45].
The financial statements of the controlling and the controlled entities should be prepared on the same reporting date for consolidation purposes [IPSAS 6.47]. If different reporting dates are used, the difference cannot exceed three months and adjustments for significant transactions and events should be made [IPSAS 6.48].
Minority interests are reported in net assets/equity in the consolidated statement of financial position, separately from the controlling entity’s net assets/equity, and they will also be presented separately in net surplus/ deficit on the face of the statement of financial performance [IPSAS 6.54].
Separate Financial Statements of the Controlling Entity
The controlling entity will account as follows in its separate financial statements for its investments in controlling entities, jointly controlled entities and associates as follows[IPSAS 6.58]:
• using the equity method (refer to IPSAS 7)
• at cost
• as financial instruments
And apply this treatment consistently for each category of investments.
Disclosures required in consolidated financial statements [IPSAS 6.62]
• list of the significant controlled entities
• if a controlled entity is not consolidated because it is exclusively held with a view to dispose, this fact should be disclosed;
• summarized financial information of controlled entities, either individually or in groups, that are not consolidated, including:
o total assets
o total liabilities
o surplus or deficit;
• name of any controlled entity in which the controlling entity holds an ownership interest and/or voting rights of 50% or less, together with an explanation of how control exists;
• the reasons why the ownership interest of more than 50% of the voting or potential voting power of an investee does not constitute control;
• the reporting date of the financial statements included in the consolidated financial statements in case the date is different from that of the controlling entity, and the reason for using a different reporting date or period
• the nature and extent of any significant restrictions (e.g., resulting from borrowing arrangements or regulatory requirements) on the ability of controlled entities to transfer funds to the controlling entity in the form of cash dividends
Disclosures required in separate financial statements that are prepared for a controlling entity that elects not to prepare consolidated financial statements: [IPSAS 6.63]
• the fact that the financial statements are separate financial statements; that the exemption from consolidation has been used; the name of the entity whose consolidated financial statements that comply with IPSASs have been produced for public use and the jurisdiction in which it operates; and the address where those consolidated financial statements can be obtained,
• a list of significant controlled entities, jointly controlled entities, and associates, including the name, jurisdiction in which it operates, proportion of voting power held (if different from proportion of ownership interest held), and the method that was used to account for these entities.
Disclosures required in the separate financial statements of a controlling entity, investor in a jointly controlled entity, or investor in an associate: [IPSAS 6.64]
• the fact that the statements are separate financial statements and the reasons why those statements are prepared if not required by law, legislation or authority
• a list of significant controlled entities, jointly controlled entities, and associates, including the name, the jurisdiction proportion of ownership interest and, if different, proportion of voting power held, and the method that was used to account for these entities.
Issuance of IPSAS 6: Consolidated and Separate Financial Statements
revision of IPSAS 6
1 January 2008
Effective date of IPSAS 6