Success of IFRS 10 in Reducing Diversity in Consolidation Reporting Practices

This report evaluates the success of IFRS 10 in reducing diversity in reporting practices related to consolidation. It also assesses the challenges with current standards and suggests improvements which IASB should consider in future meetings. The report includes an example of Unilever and highlights the importance of compliance with IFRS 10.

IFRS 10

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Evaluating success of IFRS 10 in reducing the diversity in reporting practices related to
consolidation................................................................................................................................1
Assessing the challenges with current standards and mentioning improvements which IASB
should consider in future meeting................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
IFRS refers to the international financial reporting standards which has set of accounting
rules for public companies that are intended to make functioning of these companies transparent
and easily comparable. In the current era, competition has inclined which is overcome by firms
via taking non ethical practice that has adverse impact on interest of different stakeholders.
IFRS has been implemented to ensure that proper and fair presentations of financial information
is published by public companies so that significant level of ethical working environment can be
created. Present report will focus on explaining success of IFRS 10 in reducing the diversity of
reporting practices related to consolidation. The current stud will highlight challenges with the
present standard & suggesting crucial improvements IASB can consider along with illustrating
examples of Unilever.
MAIN BODY
Evaluating success of IFRS 10 in reducing the diversity in reporting practices related to
consolidation
International financial reporting 10 has been published for making crucial improvements
by establishing few principles for preparing consolidated financial statements (IFRS 10
Consolidated Financial Statements, 2021). It is for providing the accounting guidelines related
to consolidated and joint venture so that significant level of practices can be followed by them.
It is formulated for those entities that control one or more other organizations. According to the
IFRS 10 the parent organization to have parent consolidated financial statement, defining
principle of control as the basis, setting out application of principles to identify where investor
controlling investing or not. In addition to this, defining investment entity and exception to
consolidate particular entity.
Unilever is one of the larger company of UK that has published its consolidated
financial statement on in December 2020 and have compliance with IFRS 10 to formulate its
consolidated financial statement. The company has given emphasis on formulating and
presenting the income, financial position, statement of changes in equity and cash flow
statement. The company has consistently applied accounting policies which were used in 2019.
From the evaluation it can be specified that IFRS has been published for eliminating the divers
course of action adopted by subsidiaries of parent company so that proper level of assessing
financial health can become possible (Lopes and Lopes, 2019). The main purpose for
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establishing the mentioned action for reporting financial statements by following the principles
of preparing & presenting reports. It is helpful in providing the clarity and transparency
among both the investor & investee can be obtained about the single method adoption for
reporting (Kryatova and et.al., 2022) There were several areas that has led diversity in past
which has been overcome by applying the guidelines of new control model with view of
addressing complex situations. For this purpose, new definition of control has been published
by investee that are power, exposure or rights to variable return from involvement and ability of
affecting the investors return on investment. The particular standard has given focus on number
of factors of consolidated which can lead to change in result in diversity. It has given emphasis
on focusing on these areas in appropriate manner so that relevant outcome can be obtained.
The areas in the consolidation where conclusion is possible involves power without a majority of
voting, potential voting rights, agency relationship and structured entities.
On the basis of this it can be identified that there are several areas where it pays attention
on eliminating making changes diversity in reporting practices of mentioned firm. It is
considered to be successful as has allowed to gain he clarity and transparency in the control
model which is applied by parent company for preparing and presenting financial details to its
investors. The main reason that has made this accounting standard successful in reducing the
level of diversity by paying attention on having more extensive guidance on executing
controlling approach (Kristiansen and Hov, 2019). In addition to thus, it has been identified that
IASB continues work on it so that propose change to how investment entities account for
organization they control.
Consolidated financial statement is considered to be primary source of information which
is used by lager number of stakeholders for formulating decisions related with corporate groups.
The particular reporting standard focused on making these financial statements more effective
and accurate so that purpose of referring these can become successful for stakeholders
previously there were number of diversification model which were adopted by subsidiaries and
used to made complications in decision making process. It can be justified that income and book
value of equity is unchanged by the adoption of IFRS 10. The post implementation of IFRS 10
with keeping focus on power of control has permitted to obtain accurate publications of financial
statements to meet objectives of clarity, transparency and comparability.
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It can be properly understood by referring the statements published by UK company
Unilever. From the evaluation of the presented information of Unilever published consolidated
financial statement that there are several components which has been adhered by firm for
compliance with the IFRS 10. There are number of factors which are followed by the stated
company that is helpful in indicating that there are various areas in which firm has applied this
course of action. The method of calculating cost of goods sold, depreciation, profitability
measurement, determining return on investment, etc. are the few areas which has been properly
followed as previous year to have proper functioning of single mechanism (Bedford, Bugeja
and Ma, 2021). It has applied number of IFRS for meeting the standards published for
successfully operating in the market. This has allowed the organization to meet the requirements
of stakeholders of getting the information that is relevant, reliable etc.
On the basis of this it can be interpreted that specified organization of UK is effectively
having compliance with IRS 10. In the formulation of consolidated financial statement for the
period ended 10 may 2021, it can be interpreted that company is following the same method to
ensure that users can understand the impact of particular transaction. In addition to this, firm has
given complete focus on proper disclosure of information by presenting details such as tax, etc.
There has been utilization of IFRS to identify that there is no diversity in its consolidated
financial statements so that its successful implementation can be interpreted.
Assessing the challenges with current standards and mentioning improvements which IASB
should consider in future meeting
There are few challenges which may be experienced by companies while adopting IFRS
10 in order to prepare the consolidated financial statements. Each method has few limitations
which are required to be taken into consideration for evaluating its effectiveness. Inclination of
cost of implementation for the companies that does not have much financial stability. There is
requirement proper training and knowledge for understanding its requirements and effectiveness
in turn accurate execution can be done. It is important for the investees to understand the main
purpose of having single control mechanism in its reporting practice so that higher level of
effectiveness can be achieved. It all lead to the higher cost incurring procedure which become
challenging for companies (Tarca, 2021). Few other challenging aspects that has not been
properly transitional guidance before financial statements are finalized. There is no proper
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awareness regarding how to consolidate investee that is non business acquisition which has
deferred tax, contingent consideration, etc. there is ignorance of impact of other standards such
as effect of changes in exchange rates, borrowing cost, impairment of assets, recognizing &
measuring retrospective consolidation of an investee. There is presence of non-significant
judgement of assessing whether entity is impracticable for it to consolidate an investee from the
date of control acquired under the IFRS 10. In addition to this, it can be understanding that de
consolidate from the date an investee when the control was lost.
In order to implement the suitable course of action for making improvements it
becomes essential to evaluate that there is presence of lacking areas or not. IFRS 10 is found to
be successful in addressing the issue of diversity which were creating non clarity and impacting
fair financial reporting activities. This involve difference in GAAP & IFRS, requirement of
training & education, legal consideration, taxation effect, fair value measurement, etc. The
course of areas that need significant implementation of making improvements are highlighted
above. In the initial adoption process companies experienced complexity due to lack of
knowledge regarding its significant benefit and legal complications in absence of it. In order to
compliance with principle of IFRS 10 such as setting uniformity in application of accounting
policies, having same reporting date, allocation of comprehensive income & equity to non-
controlling interests, losing control of a subsidiary (Cadot, Rezaee and Benaïs Chemama, 2021).
In addition to this, changes in ownership interest without loss of control such actions require
advanced level of training which were lacking while adopting the particular procedure which is
served to be complex. There were few situations in which IFRS is unclear and need to be
modified. It includes evidence, indicator and incentives of possible power were only areas which
were addressed. The factors that were not highlighted involves weighting of factors, incentives
to obtain, passive interest of investee, etc.
There is need of consistency in auditing and enforcement that is another issue that has
arisen due to various factors (Bulycheva and et.al., 2022). It becomes difficult to established
appropriate level of auditing procedure that can identify lope holes made by companies in order
to avoid implementation of single control mechanism. The challenges have been identified in
the application of mentioned accounting standard that as resulted in divert attention on IFRS 16
so that significant growth & development can be seen. Unilever has faced the issue which are
mentioned and highlighted above that are required to be improved. On the other side, it can be
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articulated that proper formulation of consolidated financial statements has been made to publish
accurate and fair insights to its stakeholders in turn adhering with requirement of UK financial
market has become possible. With respect to the explained example of UK published financial
statement it can be specified that IASB should concentrate on improving these lacking areas.
There are several ways in which International Accounting Standard Board with objective of
providing a common accounting language in turn higher transparency in presentation of
financial information can be derived. the particular board has given emphasis on having
relevant functioning by making annual meeting so that crucial strategies which is helpful in
eliminating irrelevant aspect creating barrier in accomplishing predetermined objectives. It is
recommended to the specific board to concentrate on offering the training & knowledge
regarding particular procedure so that higher convenience can be offered. It is considered to be
larger time consuming and complex leading procedure which is need to be focused for ensuring
the proper implication in turn higher effectiveness can be found. From the evaluation it has been
recognized that enforcement of consistent auditing is lacking which might result in creation of
non-significant practicing. For this purpose, it is suggested to the company to offer the crucial
information regarding its application, result of avoidance, establishment of accurate & consistent
auditing, concise sense of control application should be there. It can be contributing in making
appropriate improvement in the lacking areas via ensuring successful compliance with IFRS 10
by stakeholders and investee. On the basis of this, it can be mentioned that these area the areas
which are hampering performance and can be improved via taking these actions.
CONCLUSION
From the above report it can be concluded that International Financial Reporting
Standards 10 provides assistance in formulating the fair & accurate reporting statements. The
current report has given focus on evaluating the consolidated financial statements of Unilever is
public organization of UK so that significant details can be obtained. Present study has analyzed
that IFRS 10 is successful in eliminating diverse practices in reporting by establishing the single
control system. In addition to this, current study has analyzed the challenges which can be
modified by IASB in potential meeting by taking course of actions such as providing training
and knowledge, eliminating non crucial steps to mitigate complexity, enforcing consistent
auditing procedure, etc.
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REFERENCES
Books and Journals
Bedford, A., Bugeja, M. and Ma, N., 2021. The impact of IFRS 10 on consolidated financial
reporting. Accounting & Finance.
Bulycheva, T.V and et.al., 2022. Innovative Approach to Accounting Policy Development in
Accordance with International Financial Reporting Standards. In Сooperation and
Sustainable Development (pp. 897-907). Springer, Cham.
Cadot, J., Rezaee, A. and Benaïs Chemama, R., 2021. Earnings management and derivatives
reporting: evidence from the adoption of IFRS standards in Europe. Applied
Economics. 53(14). pp.1628-1637.
Kristiansen, S. and Hov, C., 2019. Endring i rentebegrensningsregelen: Forholdet til
IFRS. Skatterett. 38(4). pp.274-288.
Kryatova, L.A. and et.al., 2022. Features of the Application of IAS 21 “Impact of Exchange Rate
Changes”. In Сooperation and Sustainable Development (pp. 711-718). Springer, Cham.
Lopes, A.I. and Lopes, M., 2019. Effects of adopting IFRS 10 and IFRS 11 on consolidated
financial statements: An exploratory research. Meditari Accountancy Research.
Tarca, A., 2021. Business Combinations under Common Control: Filling a Gap in IFRS
Standards. Australian Accounting Review. 31(4). pp.321-327.
Online
IFRS 10 Consolidated Financial Statements. 2021. [Online]. Available through: <
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-10-consolidated-financial-
statements/ >.
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