IFRS 10 consolidation explained

Most listed companies are groups, and their published accounts are consolidated financial statements prepared under IFRS 10. This guide explains who must consolidate, how control is assessed, the steps of consolidation, and the exemptions, including for investment entities.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 3 minute read.

Short answer

IFRS 10 Consolidated Financial Statements requires a parent to present consolidated financial statements that combine its own figures with those of every entity it controls, its subsidiaries, as if they were a single economic entity. Control exists when an investor has power over an investee, exposure or rights to variable returns, and the ability to use its power to affect those returns. Consolidation adds the subsidiaries' assets, liabilities, income and expenses line by line, eliminates intragroup items and shows the non-controlling interest separately.

At a glance

Requires
Consolidated statements for a parent
Consolidate
Every entity the parent controls
Control
Power, variable returns, link
Method
Line by line, eliminate intragroup
NCI
Separately within equity
Excel
Consolidation worksheet
IFRS 10 consolidation explainedRequires: Consolidated statements for a parent; Consolidate: Every entity the parent controls; Control: Power, variable returns, link; Method: Line by line, eliminate intragroup; NCI: Separately within equity; Excel: Consolidation worksheet.KEY FACTS AT A GLANCEIFRS 10 consolidation explainedRequiresConsolidated statementsfor a parentConsolidateEvery entity the parentcontrolsControlPower, variable returns,linkMethodLine by line, eliminateintragroupNCISeparately within equityExcelConsolidation worksheetTax BakersIFRS 10 consolidation explainedRequires: Consolidated statements for a parent; Consolidate: Every entity the parent controls; Control: Power, variable returns, link; Method: Line by line, eliminate intragroup; NCI: Separately within equity; Excel: Consolidation worksheet.KEY FACTS AT A GLANCEIFRS 10 consolidation explainedRequiresConsolidated statements for a parentConsolidateEvery entity the parent controlsControlPower, variable returns, linkMethodLine by line, eliminate intragroupNCISeparately within equityExcelConsolidation worksheetTax Bakers
Key facts at a glance, as set out in this guide.

Why are consolidated financial statements needed?

Investors in a parent company are exposed to everything the group owns and owes, not just the parent's own assets. If a parent's only asset were its shares in subsidiaries, its own accounts would show one investment line and hide the debts, revenue and risks of the businesses it runs. Consolidation shows the group as the single economic unit it is.

Who must prepare consolidated financial statements?

Every parent, unless it qualifies for an exemption: it is itself a wholly owned subsidiary, or a partly owned subsidiary whose other owners do not object; its debt or equity is not publicly traded and it is not in the process of issuing them; and its ultimate or intermediate parent publishes IFRS consolidated financial statements available for public use. Investment entities measure most subsidiaries at fair value through profit or loss instead of consolidating them.

What does control mean under IFRS 10?

An investor controls an investee when it has all three of: power, the current ability to direct the activities that significantly affect the investee's returns; exposure, or rights, to variable returns from its involvement; and the ability to use its power to affect the amount of those returns. Voting rights are usually decisive, but contracts, potential voting rights and the dispersion of other holders all matter. See control under IFRS 10.

What are the consolidation procedures?

Consolidation in five stepsConsolidation in five steps1IdentifysubsidiariesEvery entityit controls2AlignSame policies,same dates3Add lineby lineEvery item,combined4EliminateInvestment andintragroup items5SplitParent's shareand NCI
The group is presented as a single economic entity.
  • Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries.
  • Offset the parent's investment in each subsidiary against its share of the subsidiary's equity, recognising goodwill under IFRS 3.
  • Eliminate intragroup balances, transactions, income, expenses and unrealised profits in full. See intragroup eliminations.
  • Apply uniform accounting policies, adjusting a subsidiary's figures where its policies differ.
  • Use the same reporting date, or adjust for significant events if a subsidiary's date differs by no more than three months.

How is the non-controlling interest presented?

Within equity, separately from the parent owners' equity, with profit and total comprehensive income split between the owners of the parent and the non-controlling interest. Changes in ownership that do not result in loss of control are equity transactions. See non-controlling interest.

What happens when control is lost?

The parent derecognises the subsidiary's assets, liabilities and non-controlling interest, recognises any consideration received and any retained investment at fair value, and recognises the resulting gain or loss in profit or loss. Amounts in other comprehensive income relating to the subsidiary are reclassified or transferred as if the assets had been disposed of.

Where can I see a full example?

In a consolidation example, a parent that paid 500 for 80% of a subsidiary produces a consolidated statement of financial position with goodwill of 116 and a non-controlling interest of 106. The Consolidation worksheet (Excel) builds it from both balance sheets.

How do separate financial statements differ?

A parent's own, separate financial statements show its investments in subsidiaries at cost, under IFRS 9 or using the equity method, as chosen under IAS 27. They are prepared in addition to the consolidated statements, often because local law requires them, and do not replace them.

Common mistakes

  • Leaving a subsidiary's different accounting policies unadjusted on consolidation.
  • Eliminating intragroup sales without removing the unrealised profit in inventory.
  • Including the subsidiary's pre-acquisition reserves in group retained earnings.

Under US GAAP, consolidation follows ASC 810, including the variable interest entity model. Within IFRS: IFRS 11 for joint arrangements, IAS 28 for associates and joint ventures accounted for using the equity method, IFRS 12 for disclosures about interests in other entities, and IAS 27 for a parent's separate financial statements.

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Questions people ask

What is IFRS 10?

The IFRS standard requiring a parent to present consolidated financial statements that include every entity it controls.

When does an investor control an investee under IFRS 10?

When it has power over the investee, exposure or rights to variable returns, and the ability to use its power to affect those returns.

Are all subsidiaries consolidated?

Yes, except that investment entities measure most subsidiaries at fair value through profit or loss.

Where is the non-controlling interest presented?

Within equity, separately from the equity of the owners of the parent.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 10 Consolidated Financial Statements

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IFRS 10Control: power, returns and the link between themIFRS 10A consolidation example from start to finishIFRS 10Intragroup transactions and eliminations

More in IFRS 10

TopicAll 4 guides in IFRS 10

This guide is general information. It is not tax or legal advice for your situation.