FAF3
Syllabus G. Preparing Simple Consolidated Financial Statements G1. Subsidiaries

G1b. Group structure 2 / 11

Syllabus G1b)

Identify subsidiaries within a group structure.

ACCA FA G1b Group structure

Subsidiary within a group structure

P is an individual legal entity, known as the parent. The parent is an entity that has one or more subsidiaries.

S is an individual legal entity, known as the subsidiary.

P owns more than 50% of the ordinary shares of S. It has enough voting power to appoint all the directors of S.  P has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Although P and S remain distinct, in economic substance, they can be regarded as a single unit, the group.

Although control is usually based on ownership of more than 50% of voting power, IAS 27  lists the following situations where control exists, even when the parent owns only 50% or less of the voting power of an enterprise.

  1. The parent has power over more than 50% of the voting rights by virtue of agreement with other investors

  2. The parent has power to  govern the financial and operating policies of the enterprise by statute or under an agreement

  3. The parent has the power to appoint or remove a majority of members of the board of directors (or equivalent governing body)

  4. The parent has power to cast a  majority of votes at meetings of the board of directors

Consolidated financial statements present the results of the group; they do not replace the financial statements of the individual group companies.