Relevance is judged in terms of presenting a true and correct consolidated financial statement, and is assessed on an individual basis by comparing the financial data of the company to be excluded with corresponding data on the consolidated financial statement.
If subsidiaries are not to be consolidated on the basis of their not being significant then a note must be attached indicating their exclusion and the reasons behind it and the reporting company’s investment in that subsidiary should be assessed using direct net asset adjustment method or cost method.
Where a subsidiary is not consolidated because of serious and lasting restrictions, a note must be attached highlighting the exclusion and the reasons behind it. The reporting company’s share in that subsidiary can only be assessed using the cost method, which can lead to write-downs attributable to declines in value.
Where subsidiaries are not consolidated because the relevant information cannot be found in time, the attached note should highlight their exclusion and the reasons for it. Should it be impossible to gather the information necessary for equity method reporting, then the reporting company’s share in that particular subsidiary should be assessed using cost method, with the relevant write-down if there has been a lasting decline in value.
Where exclusion from consolidation is on the grounds that the asset is being held solely with a view to a future alienation, the attached note must highlight the exclusion and the reasons behind it. The reporting company’s share in the excluded company should be valued as the lower of cost and net realisable value.
With this valuation procedure, the value of an asset, initially set at its cost price, is adjusted up or down to reflect the reporting company’s share in the profits and losses of a subsidiary after acquisition.
Equity method is therefore applied:
We use the Luxottica group to illustrate which subsidiaries are excluded from consolidation.
The Mediaset group is a further example of how certain subsidiaries fall outside the scope of consolidation.
The Fiat group is also used as an example to illustrate exclusion from consolidation.
3. Consolidation and its scope
4. Assessment of excluded investments. Corporate case studies
5. Governance and strategic framework. Corporate case-studies
9. Consolidation of investments
11. Consolidated financial statements
13. Tax effects of transition to IAS, IFRS
14. National and International tax consolidation