Let’s break it down a bit: When assessing whether an investor controls an investee, more than one factor need to be considered. In order to prepare consolidated financial statements, IFRS 10 prescribes the following consolidation procedures: If you’d like to learn HOW to actually apply these consolidation procedures and how to prepare the consolidated financial statements on numerical examples, please check out the IFRS Kit.
Here, I’d like to summarize the first “consolidation” standard dealing with the consolidated financial statements: IFRS 10.
This is the second standard dealing with the situation when the investor obtains a control over its investment.
As opposed to IFRS 3 mentioned above, IFRS 10 , which could be a joint operation or joint venture.
Consolidated financial statements do not always give a more accurate picture of the financial health of an enterprise because the individual accounting reports from the subsidiaries do not show up anywhere but in the notes section of the consolidated finances.
This makes it possible to hide problems in the subsidiary reports, which is how Enron managed to hide the losses and liabilities some of its failed projects generated.
The opposite may be true: investor can have a control despite the share lower than 50%.