Corporate Reporting
ACA Corporate Reporting examines whether you can apply IFRS to complex, judgement-heavy transactions and present the resulting numbers in group and single-entity financial statements. The exam rewards precise computation plus a clear explanation of the accounting treatment chosen.
Group reporting
Control under IFRS 10 exists when the investor has power over the relevant activities, exposure to variable returns and the ability to use its power to affect those returns. Consolidate from the date control is obtained. Goodwill at acquisition is consideration transferred plus NCI plus any previously held interest, less the fair value of identifiable net assets. NCI is measured either at fair value or at its proportionate share of net assets, and the choice changes goodwill, not total equity. Eliminate intragroup balances and unrealised profits; account for associates using the equity method under IAS 28.
Single-entity judgement areas
IFRS 15 applies a five-step model, including variable consideration constrained to the amount highly probable not to reverse. IFRS 16 recognises a right-of-use asset and lease liability at the present value of lease payments. IFRS 9 classifies financial assets by business model and contractual cash-flow characteristics and requires forward-looking expected credit losses. IAS 12 recognises deferred tax on temporary differences, including fair value adjustments in consolidation and revaluations. IAS 19 puts remeasurements of defined benefit obligations in OCI.
Worked example
Parent pays £800,000 for 80% of Sub. Sub’s identifiable net assets have a fair value of £900,000. NCI is measured at fair value of £220,000. Goodwill = 800,000 + 220,000 − 900,000 = £120,000. If NCI were proportionate, it would be 20% × 900,000 = £180,000 and goodwill £80,000. The £40,000 difference is the NCI share of goodwill.
Traps
Using carrying amounts instead of acquisition-date fair values; forgetting deferred tax on fair value adjustments; omitting the remeasurement of a previously held interest in a step acquisition; charging remeasurements of defined benefit plans to profit or loss; and ignoring the constraint on variable consideration.