Analysis of CFS Issues: Engineering & Construction PLC Financials

This report focuses on the consolidated financial statement (CFS) issues at Engineering & Construction PLC, highlighting inappropriate treatments related to the control concept, significant influence, and goodwill calculation. It provides guidance on these key aspects, emphasizing their importance in group reporting and disclosure obligations. The analysis covers definitions and implications of control under IFRS 10 and significant influence, as well as reporting requirements for business combinations and consolidated financial statements under IAS 27 and IAS 28. The report also addresses the accounting treatment of investments in subsidiaries, associates, and joint ventures, including the disclosure requirements for ownership interests and variations in reporting dates, ultimately providing a conclusion based on the discussion of these critical financial reporting elements.

Name of the student
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Student ID

Objective
The main objective of the report is to focus
on the issues those were not treated
appropriately by Engineering & Construction
PLC while preparing the consolidated
financial statements (CFS). Hence, the
report will highlight the issues regarding the
control concept, significant influence and
amount of goodwill arising on the date of
acquisition

It will further guidance on account of
the key aspects of the above
mentioned concepts for including the
purpose and importance under group
reporting and obligations to provide
the same. Finally the report will
provide conclusion based on the
discussion (Müller 2014).

Scope
The standard shall be applied in respect of
accounting for the investments in associates in
presentation and preparation of the
consolidated financial statements by the
investor. However, it does not deal with the
investment accounting in the associates in
preparing and presenting of the separate
financial statements by the investors.

Key definition
Change in the definition of control under IFRS
10 – Consolidated financial statement is
estimated to have great impact on
investment management industry. The
investment manager will require applying
more comprehensive guidance of IFRS 10. It
is regarding stating whether they have
control on the entities with whom they are
associated and whether they will require
consolidating the entities under their financial
statements.

The term control is stated as ownership,
indirectly or directly through the
subsidiaries of more than 50% of voting
power of any enterprise or has control on
the composition of board of directors in
case the company or composition of
governing body in circumstances where the
other enterprises for obtaining the
economic benefits from the activities
(Iasplus.com 2018).

The term significant influence is power of
participating in financial or / and the operating
policy related decisions of of investee however
does not have any control on those policies.
Significant influence is achieved through share
ownership, agreement or statute. However, if the
investor indirectly or directly holds 20% or more
than 2015 of voting power of the investee it is
considered as the investors has significant
influence (Mca.gov.in 2018).

While the entity prepares the separate financial
statement, it must account for the investments under
subsidiaries, associates and joint ventures either – (i) at
the cost (ii) as per IFRS 9 – financial instruments or (iii)
through usage of the equity method as per IAS 28 –
Investments in joint ventures and associates. Further,
the investors must use same accounting for each
investment category (Iasplus.com 2018). Investment
treated at cost or usage of equity method must be
accounted as per IFRS 5 – Non-current assets held for
sale and discontinued operations.
Reporting under business combination and
consolidated financial statements

Excess of cost, if any to parent of the
investment in the subsidiary over parent’s
proportion of the equity of subsidiary, on
the date on which the investments in
subsidiary is made shall be stated as
goodwill. This goodwill shall be recorded as
asset under the CFS (Mca.gov.in 2018)

IAS 27 presents the disclosure as well as accounting
requirements for the purpose of investment in the
subsidiaries, associates and joint ventures
(Iasplus.com 2018). Proper description and listing
including ownership interest proportion shall be
disclosed. If the voting power proportion varies with
the ownership interest it shall further be disclosed in
consolidated financial statements. Investments in
the associates that are accounted to use equity
method shall be classified as the long term
investment and shall be disclosed under the CFS
separately.
disclosures

Names of associates for which the date of
reporting varies from investor’s financial
statement date difference in the reporting
dates shall be disclosed in consolidated
financial statements. In case the associate
uses the accounting policies that varies with
which adopted for same events and
transactions under similar conditions, the fact
behind using different accounting policies shall
be disclosed.

Reference
Iasplus.com. 2018. IAS 27 — Separate Financial
Statements (2011). [online] Available at:
https://www.iasplus.com/en/standards/ias/ias27-2011
[Accessed 20 Nov. 2018].
Iasplus.com. 2018. IAS 28 — Investments in Associates
and Joint Ventures (2011). [online] Available at:
https://www.iasplus.com/en/standards/ias/ias28-2011
[Accessed 20 Nov. 2018].
Mca.gov.in. 2018. [online] Available at:
http://www.mca.gov.in/Ministry/notification/pdf/AS_23.pdf
[Accessed 20 Nov. 2018].
Müller, V.O., 2014. The impact of IFRS adoption on the
quality of consolidated financial reporting. Procedia-Social
and Behavioral Sciences, 109, pp.976-982.