IFRS 10, 11 and 12

The IFRS consolidation suite is a group of accounting standards that define how companies report their relationships with subsidiaries, joint arrangements, and other investees.^[1] It consists of three specific standards: IFRS 10, IFRS 11, and IFRS 12.^[2] These standards, namely IFRS 10, IFRS 11, and IFRS 12, were introduced to harmonize international reporting and address transparency issues that emerged during the financial turmoil of the late 2000s.^[3]

IFRS 10, IFRS 11 and IFRS 12 are three International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB) providing accounting guidance related to consolidation and joint ventures.^[4] The standards IFRS 10, IFRS 11, and IFRS 12 were issued in 2011 and became effective in 2013.^[5] Within this suite, IFRS 10 addresses consolidated financial statements, IFRS 11 addresses joint ventures and IFRS 12 addresses disclosures of interests in other entities.^[5][6] The standards IFRS 10, IFRS 11, and IFRS 12 were developed in part due to the 2008 financial crisis.^[5][6][7] During the crisis, accounting rules—later replaced or supplemented by IFRS 10, IFRS 11, and IFRS 12—were criticized for permitting certain risky arrangements to be excluded from company balance sheets.^[5][8]

IFRS 10 revised the definition of having "control" of another entity, requiring that entity to be consolidated onto the controlling entity's balance sheet.^[9][10] The revised definition in IFRS 10—comprising power, exposure to variable returns, and the ability to use power to affect those returns—is expected to increase the likelihood that an entity is deemed to have control over another.^[11][12]

IFRS 11 largely retained previous accounting guidance for joint ventures, but adopted the IFRS 10 definition of "control" to establish "joint control," meaning that joint arrangements under IFRS 11 would be deemed to exist in some circumstances where they weren't previously, and vice versa.^[13][14]

Illustrative Example: Acquisition of an Interest in a Joint Operation

As an illustrative disclosure for IFRS 11.21A, this example demonstrates the acquisition of an interest in a joint operation that constitutes a business. Under IFRS 11.IE53–IE57, the acquirer applies IFRS 3 principles to recognize its contractually agreed share of identifiable assets and liabilities at fair value.^[15] Any excess of consideration over the net fair value is recognized as goodwill, while acquisition-related costs are expensed per IFRS 3.53.^[16][17]

IFRS 12 requires the disclosures related to subsidiaries, joint ventures (governed by IFRS 11) and interests in other entities (governed by IFRS 10) which are not consolidated to be combined into a single disclosure.^[18][19] Under IFRS 12, it also requires disclosures about significant judgements used to determine whether control exists, why it determined that control did not exist, and its relationship with entities it did not consolidate.^[20][21] These extra disclosures in IFRS 12 were also in response to criticism of the previous accounting guidance after the 2008 financial crisis.^[6][22]

The Financial Accounting Standards Board (FASB), which promulgates accounting standards in the United States, also revised its consolidation rules due to the 2008 financial crisis, although its revised guidance is not identical to IFRS 10, IFRS 11 and IFRS 12.^[5][23] However, IFRS 11 is very close to the FASB guidance for joint ventures.^[5][24]

The consolidation process follows a structured sequence of technical steps to transform individual entity reports into a unified group financial statement.^[25] This framework is supported by international auditing standards which require the elimination of intra-group transactions and the harmonization of accounting policies.