Financial Reporting · Consolidated Financial Statements

Exemption from Consolidation and Investment Entities under Ind AS 110

Updated 5 October 2026 · Fact-checked

Under Ind AS 110, a parent need not present consolidated financial statements if it meets all the stated conditions, such as being a wholly or partly owned subsidiary whose owners do not object and whose ultimate or any intermediate parent publishes Ind AS-compliant consolidated statements. An investment entity does not consolidate subsidiaries. It measures them at fair value through profit or loss. Test each condition, then conclude.

Understand Exemption from Consolidation and Investment Entities

Normally, a parent consolidates all its subsidiaries. Consolidated financial statements (CFS) show the group as a single economic entity. Ind AS 110 allows two relief routes. You must know both, and you must know how they differ.

Route 1: Exemption from presenting CFS. A parent need not present CFS if all the conditions are met. The parent is itself a wholly-owned subsidiary of another entity, or a partly-owned subsidiary of another entity and all its other owners (including those not otherwise entitled to vote) have been informed and do not object to the parent not presenting CFS. Its debt or equity instruments are not traded in a public market. A public market means a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets. So trading on an over-the-counter or regional market also fails this condition. It has not filed, and is not filing, its financial statements with a securities commission or regulator to issue instruments in a public market. Its ultimate or any intermediate parent produces consolidated financial statements available for public use that comply with Ind AS (the logic: users already get group information at a higher level).

The key point is that this is a set of conditions that must all be met. If one fails, the parent must prepare CFS. The Companies Act, 2013 has its own requirements on CFS, tested separately from Ind AS 110, so read the question for which framework it asks about. An exempt parent still prepares separate financial statements under Ind AS 27.

Route 2: Investment entity exception. An investment entity is one that obtains funds from one or more investors for the purpose of providing those investors with investment management services, commits to its investors that its business purpose is investing solely for returns from capital appreciation, investment income or both, and measures and evaluates the performance of substantially all its investments on a fair value basis. A parent that is an investment entity does not consolidate its subsidiaries. It measures them at fair value through profit or loss (FVTPL) under Ind AS 109.

Typical characteristics (these are indicators, not strict tests): more than one investment, more than one investor, investors that are not related parties of the entity, and ownership interests in the form of equity or similar interests. An entity lacking one of these may still qualify, but it must then disclose the significant judgements and assumptions it made in concluding that it is an investment entity.

One important exception: if an investment entity has a subsidiary that provides services related to its investment activities (such as investment management), that subsidiary is consolidated, not measured at fair value. Also, a parent of an investment entity must consolidate all its subsidiaries, including those held through the investment entity, unless the parent itself is an investment entity.

Key rules to remember

Exemption from CFS (all must be met): Exempt if: (a) wholly-owned subsidiary of another entity, or partly-owned subsidiary of another entity with all its other owners informed and not objecting to the parent not presenting CFS AND (b) instruments not traded in a public market (domestic or foreign stock exchange or over-the-counter market, including local and regional markets) AND (c) not filing for public issue AND (d) ultimate or any intermediate parent publishes public Ind AS-compliant CFS; Failing any one condition means CFS is required. The parent still prepares separate financial statements.
Investment entity definition: Investment entity = obtains funds from one or more investors for the purpose of providing them investment management services + commits to investors that business purpose is investing solely for returns from capital appreciation/investment income + measures and evaluates substantially all investments at fair value; All three elements are needed.
Typical characteristics of an investment entity: More than one investment + more than one investor + unrelated investors + ownership interests as equity or similar; Absence of a characteristic does not automatically disqualify, but the significant judgements made must be disclosed.
Accounting by an investment entity: Subsidiary (not providing investment-related services) → FVTPL under Ind AS 109; subsidiary providing investment-related services → consolidate; Applies to the investment entity's own financial statements.
Parent of an investment entity: A non-investment-entity parent consolidates all subsidiaries, including those held via the investment entity; Fair value accounting is not carried up the chain.

How to solve Exemption from Consolidation and Investment Entities questions

Use this sequence for any question on exemption or investment entities. Decide which route the facts point to before you apply any condition.

1Identify the entity and its position: is it a parent, an intermediate parent, or an ultimate parent? Is it a subsidiary of someone else?
2Check whether the question is about exemption from CFS or investment entity status. Facts such as investors, fair value basis and exit strategy point to investment entity.
3For exemption, list the four conditions and tick each against the facts: wholly-owned, or partly-owned with other owners informed and not objecting; no public trading; no filing for public issue; and public Ind AS-compliant CFS by the ultimate or any intermediate parent.
4For investment entity, test the three definitional elements (including the commitment to investors that the purpose is solely returns), then the four typical characteristics. Note any missing characteristic and state that the significant judgements must be disclosed.
5Identify each subsidiary: does it provide investment-related services to the entity? If yes, consolidate it. If not, measure at FVTPL.
6Consider the parent of the entity: a parent that is not itself an investment entity consolidates everything.
7State the conclusion with the accounting: CFS required or not, and measurement basis. Mention that separate financial statements are still prepared where exempt.
8Add any disclosure, such as significant judgements about investment entity status.

Quickest way: Four-condition tick and three-element test

When to use it: When time is short in a case-scenario MCQ or a short written answer.

Write EXEMPT? and tick the four conditions in one line: ownership with no objection, not publicly traded, no public issue filing, ultimate or intermediate parent's public CFS. One cross means CFS is required.
For investment entity, write: funds from investors for investment management services + commitment to solely-returns purpose + fair value basis. All three, or it is a normal parent.
Mark each subsidiary as service-providing (consolidate) or not (FVTPL).
Check if the question asks about the entity or its parent. The parent consolidates everything unless it is an investment entity too.
Write the conclusion in one sentence with the measurement basis.

Common mistakes in Exemption from Consolidation and Investment Entities

Saying a wholly-owned subsidiary is always exempt from CFS.
Students remember the ownership condition and forget the other conditions.
Fix: Tick all four conditions. Public trading, public issue filing and the published CFS of the ultimate or an intermediate parent also matter.
Forgetting that an exempt parent still prepares separate financial statements.
Exemption is read as no financial statements at all.
Fix: State that the entity presents separate financial statements under Ind AS 27.
Measuring every subsidiary of an investment entity at fair value.
The rule is remembered as all subsidiaries at FVTPL.
Fix: A subsidiary providing investment-related services to the entity is consolidated. Only the others are at FVTPL.
Treating the four typical characteristics as strict tests that disqualify.
They look like a checklist.
Fix: Missing characteristics call for judgement and disclosure of the significant judgements made. The three definitional elements are the real test.
Letting the parent of an investment entity also use fair value.
Students assume fair value carries up the group.
Fix: A parent that is not an investment entity consolidates all its subsidiaries, including those held through the investment entity.
Treating investment entity as a choice available to any parent.
Mixing it up with the fair value option for financial assets.
Fix: It is a status based on facts. If the entity meets the definition, the exception applies; if it does not, it consolidates.
Ignoring the non-objection condition for a partly-owned subsidiary.
Students focus on ownership percentage and public trading.
Fix: For a partly-owned subsidiary, check that the other owners have been informed and do not object to the parent not presenting CFS.

Worked examples

Example 1

Alpha Ltd is a wholly-owned subsidiary of Beta Ltd. Alpha has a subsidiary, Gamma Ltd. Alpha's shares and debentures are unlisted and it has not filed anything with SEBI for a public issue. Beta, the ultimate parent, publishes consolidated financial statements under Ind AS that are available to the public. Must Alpha present CFS?

Show the solution

Alpha is a parent (of Gamma) and itself a wholly-owned subsidiary of another entity, Beta, so the ownership condition is met. Because it is wholly-owned, there are no other owners whose objection needs checking.
Its debt and equity instruments are not traded in a public market: met.
It has not filed and is not filing for a public issue: met.
Beta, the ultimate parent, publishes public Ind AS-compliant CFS: met. An intermediate parent publishing such CFS would also have satisfied this condition.
All four conditions are met, so Alpha need not present CFS under Ind AS 110. The Companies Act, 2013 exemption conditions are tested separately.

Answer: Alpha is exempt from presenting CFS under Ind AS 110. It still prepares separate financial statements under Ind AS 27, in which Gamma is shown at cost, in accordance with Ind AS 109, or using the equity method. Alpha applies the accounting policy it chooses for each category of investments; it is not a free choice investment by investment. The Companies Act, 2013 conditions for exemption must be checked separately.

Example 2

Fund Ltd raises money from 40 unrelated investors and provides them investment management services. It invests in the equity of several companies for capital appreciation and measures and evaluates all its investments on a fair value basis. It holds 80% of Target Ltd, an investee, and 100% of Advisory Ltd, which provides investment advisory services only to Fund Ltd. Assume Target is held solely for capital appreciation or investment income. How are Target and Advisory treated in Fund's financial statements?

Show the solution

Test the definition: funds obtained from one or more investors for the purpose of providing them investment management services, commitment to investors that the purpose is solely returns from capital appreciation, fair value performance evaluation. All three are met, so Fund is an investment entity.
The typical characteristics are also present: several investments, 40 investors, unrelated investors, equity interests.
Target is an investee, assumed to be held solely for capital appreciation or investment income, and it does not provide services related to Fund's investment activities, so it is not consolidated and is measured at FVTPL under Ind AS 109.
Advisory provides investment-related services solely to Fund, so it is consolidated.
If Fund's own parent is not an investment entity, that parent will consolidate both Target and Advisory.

Answer: Target is measured at fair value through profit or loss. Advisory is consolidated by Fund. A non-investment-entity parent of Fund would consolidate all of them.

Exam tips

In MCQs, scan for a failed condition first, such as listed debentures or an objecting minority. That usually decides the answer.
Write exemption answers in provision-facts-conclusion form: state the four conditions, match facts, then conclude.
For investment entity questions, name the three definitional elements before discussing characteristics.
Always mention the service-providing subsidiary and the parent-of-investment-entity points, as they are favourite twists.
Link your answer to separate financial statements when the parent is exempt, and say how the subsidiary is shown there: at cost, per Ind AS 109, or by the equity method. The policy chosen is applied for each category of investments.

Practice questions from Consolidated Financial Statements

Exemption from Consolidation and Investment Entities: frequently asked questions

When is a parent not required to prepare CFS under Ind AS 110?

When it is a wholly-owned subsidiary, or a partly-owned subsidiary whose other owners are informed and do not object. Also, its instruments must not be publicly traded, it must not be filing for a public issue, and its ultimate or any intermediate parent must publish public Ind AS-compliant CFS. All conditions must be met.

What is the difference between an investment entity and a normal parent?

A normal parent consolidates all its subsidiaries line by line. An investment entity measures its subsidiaries at fair value through profit or loss, except those providing investment-related services, which it consolidates.

Is an investment entity a free choice?

No. It is a status decided by the definition and facts. An entity that meets the definition applies the exception, and one that does not must consolidate.

Does the parent of an investment entity also use fair value?

Not unless the parent is itself an investment entity. Otherwise the parent consolidates all its subsidiaries, including those held through the investment entity.