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ACCA Strategic Professional · Strategic Business Reporting (International) · Group accounting including statements of cash flows

Omega's board asks its finance director to avoid consolidating Zeta, a 55% owned entity that Omega controls, because Zeta has large losses that would hurt Omega's reported results. Under IFRS Accounting Standards, what is the correct treatment?

Zeta must be consolidated. Omega controls it, and IFRS 10 requires all controlled subsidiaries to be consolidated regardless of their losses. Excluding it to improve results would misrepresent the group's position, so the finance director should refuse in line with the professional duty of integrity.

  1. AConsolidate Zeta, because control exists and IFRS 10 does not permit exclusion based on the subsidiary's lossesCorrect
  2. BExclude Zeta and account for it as an associate
  3. CExclude Zeta and disclose the losses in the notes
  4. DConsolidate Zeta only when it becomes profitable

Explanation

IFRS 10 requires a parent to consolidate all entities it controls, unless it is an investment entity or other exemption applies. Poor results are not a permitted reason for exclusion. The finance director should resist the instruction in line with the ethical principle of integrity.

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