Question Tag: Disclosure Requirements

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  • 5 Marks

CR – Nov 2021 – L3 – Q4b – Consolidated Financial Statements

Explain the disclosure requirements for a parent company that is exempt from preparing consolidated financial statements and elects to prepare separate financial statements under IFRS 10.

What are the disclosure requirements of a parent company that is exempt from preparing consolidated financial statements and elects not to do so and instead prepares separate financial statements?

 

When a parent company is exempt from preparing consolidated financial statements under IFRS 10: Consolidated Financial Statements and chooses to prepare separate financial statements, it must comply with the specific disclosure requirements set out in the standard. The following disclosures are required:

  1. Statement of Exemption:
    • The parent company must explicitly state that the financial statements being presented are separate financial statements and that it has taken advantage of the exemption from consolidation.
  2. Disclosure of the Entity Providing Consolidated Financial Statements:
    • The parent company must disclose the name and principal place of business (and country of incorporation, if different) of the entity that prepares the consolidated financial statements in accordance with IFRS. It should also disclose the address where those consolidated financial statements can be obtained.
  3. List of Significant Investments:
    • A list of significant investments in subsidiaries, joint ventures, and associates should be disclosed. This list must include the following details for each investment:
      • The name of each investee.
      • The principal place of business (and country of incorporation, if different) of the investee.
      • The proportion of ownership interest and, if different, the proportion of voting rights held by the parent company.
  4. Accounting Method for Investments:
    • The parent company must describe the method used to account for its investments in subsidiaries, joint ventures, and associates in the separate financial statements. For instance, the parent might apply the cost method or the equity method as appropriate.

These disclosures are intended to provide transparency to users of the financial statements regarding the scope of the financial statements and the financial relationships of the parent company with its subsidiaries, joint ventures, and associates.

  • 5 Marks

CR – Nov 2021 – L3 – Q3a – Foreign currency

Explain the disclosure requirements when financial information is presented using convenience translation in a different currency under IAS 21.

An entity sometimes displays its financial statements or other financial information in a currency that is different from either its functional currency or its presentation currency simply by translating all amounts at end-of-period exchange rates. This is sometimes called a convenience translation. A result of making a convenience translation is that the resulting financial information does not comply with all IFRS, particularly IAS 21: The Effects of Changes in Foreign Exchange Rates.

Required:

Explain the disclosure requirements when convenience translation is used to display financial information.

When an entity uses convenience translation to display its financial information, it is important to make specific disclosures to ensure that users of the financial statements are aware of the nature and limitations of the translated information. IAS 21: The Effects of Changes in Foreign Exchange Rates provides guidance on the required disclosures when convenience translation is used.

The following disclosure requirements must be met:

  1. Identify the Information as Supplementary:
    • The entity must explicitly state that the information presented in the alternative currency is supplementary and does not comply with IFRS. This is necessary to avoid misleading users into thinking that the information presented in the translated currency is in full compliance with IFRS standards.
  2. Disclosure of Currency Used:
    • The entity should clearly disclose the currency in which the supplementary information is displayed. This will help users understand the basis of the translation and its potential limitations.
  3. Disclosure of Functional Currency:
    • The entity must disclose its functional currency (the currency of the primary economic environment in which it operates) in the notes to the financial statements. This is crucial because it provides context for the convenience translation.
  4. Method of Translation:
    • The entity should disclose the method of translation used to arrive at the translated financial information. This includes specifying the exchange rates applied, particularly whether the translation was done using end-of-period exchange rates or some other method.

These disclosures help ensure transparency and enable users to assess the limitations and usefulness of the convenience translation in making economic decisions.

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