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determining which entities are consolidated in the consolidated financial statements. The HKFRS also sets out the accounting requirements for the preparation of consolidated financial statements.
Hong Kong Accounting Standard 27 Consolidated and Separate Financial Statements (HKAS 27) is set out in paragraphs 1–46 and Appendices A and B. All the paragraphs have equal authority.
This article focuses on some of the main principles of consolidated financial statements that a candidate must be able to understand and gives examples of how they may be tested in objective test questions (OTs) and multi-task questions (MTQs).
HKAS 27 requires the consolidation of entities that are controlled by the reporting entity. Thus, an SPE should be consolidated when the substance of the relationship between an entity and the SPE indicates that the SPE is controlled by that entity. 3
Consolidated Financial Statements and Accounting for Investments in Subsidiaries, which had originally been issued by the International Accounting Standards Committee in April 1989. IAS 27 replaced most of IAS 3 Consolidated Financial Statements (issued in June 1976).
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.
The objective of consolidated financial statements is to present the results of the group in line with its economic substance, which is that of a single reporting entity. Financial statements, including consolidated financial statements, must report the substance of transactions and arrangements.
