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Proactive - Separate Financial Statements prepared under IFRS


When Member States have selected the option in the 2002 IAS Regulation that enables companies to prepare their annual accounts in conformity with IFRS, a number of practical concerns have arisen in the application of IFRS to the separate financial statements.

In addition, the Italian Standard Setter (OIC) and EFRAG joint proactive project that resulted in a Discussion Paper on Accounting for Business Combinations under Common Control (BCUCC) highlighted the need for further work on the application of IFRS in separate financial statements.

To address these concerns, EFRAG and the Standard Setters of Italy, the Netherlands and Spain are issuing a Discussion Paper to consider how financial statements (other than consolidated financial statements) are used in Europe for economic decision making, and analysing the technical financial reporting issues that arise when preparing such financial statements under IFRS. The Discussion Paper proposes solutions to the issues identified and suggestions on how to consider separate financial statements in the future.

Chapter 1 provides the objective of the Discussion Paper, and then sets the framework of separate financial statements in Europe. In Chapter 2 the Discussion Paper focuses on identifying the users of financial statements presented by a parent or an investor (regardless of whether prepared under IFRS or Local GAAP), their information needs and how such financial statements are used in Europe for economic decision-making. Finally, Chapter 3 considers whether there is a need for the IASB to specifically address accounting in separate financial statements, and whether there is a need to amend certain IFRS requirements.

The main financial reporting areas outlined in this chapter are:  
  • Measurement of equity investments in separate financial statements
  • Transactions between entities under common control, including the accounting treatment of business combinations under common control in separate financial statements
  • Disclosures under separate financial statements
  • Clarification of the current terminology under IFRS
Our analysis in chapters 2 and 3 lead us to conclude that it is important to:  
  • Clarify the objective of separate financial statements
  • Develop guidance on how to account for transaction costs and contingent consideration in separate financial statements
  • Have a comprehensive debate on the most relevant method of accounting for transactions between entities under common control
  • Consider the accounting for business combinations under common control in the acquirer's separate financial statements, including legal mergers
  • Enhance the disclosures on distributions to equity holders
  • Consider whether every new standard or amendment creates any difficulties or implementation issues to preparers and users; and should be applied to separate financial statements
The Discussion Paper was open for comments until 31 December 2014 and can be downloaded here.

On 15 April 2015, EFRAG published a feedback statement summarising the main messages from respondents to the discussion paper on separate financial statements. Most respondents and participants in meetings welcomed the initiative of EFRAG and its partners in issuing the DP as a way of stimulating the discussion on separate financial statements, a topic that historically has received little attention from the IASB. While not all respondents considered that separate financial statements give rise to significant issues, a majority agreed that it would be useful if the IASB reviewed existing requirements, with a view to developing a specific set of general principles for separate financial statements.
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