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• A parent entity that is in a group that is a reporting entity must present consolidated financial statements that consolidate its investments in subsidiaries.
 

• When an entity is required to present separate financial statements, AASB 127 applies in accounting for investments in subsidiaries, jointly controlled entities and associates.

• A parent must present consolidated financial statements in which it consolidates its investments in subsidiaries, except for when:
• ­In a group of entities from the public sector, the parent may not be explicitly identified as a reporting entity. The standard does not deem the parent to be a reporting entity, nor does it require the parent to prepare separate financial statements.
 

• ­The parent itself is a wholly owned subsidiary and the owners do not object to the parent not presenting consolidated financial statements.
 

• ­The parent’s debt or equity instruments are not publicly traded.
 

• ­The parent did not file or is not in the process of filing its financial report with a securities commission.
 

• ­The ultimate or intermediate parent of the parent produces consolidated financial statements.
• Despite these exceptions, the ultimate Australian parent must present consolidated financial statements when either the parent or the group is a reporting entity or when both parent and group are reporting entities.

• Consolidated financial statements must include all subsidiaries of the parent.
 

• Generally control exists when a parent owns more than half of the voting power of an entity (either directly or indirectly), unless it can be demonstrated that the ownership does not constitute control.
 

• Control may also exist when a parent owns less than half of the voting power in certain situations.
 

• In the public sector, control is usually specified in legislation or where there is power to give policy directions. Other factors to consider include ministerial approval of operating budgets and ministerial power of direction.

• To prepare consolidated financial statements, the financial statements of the parent and its subsidiaries are combined such by adding together items line by line.
 

• To ensure that the consolidated financial statements represent the financial information of the group as a single economic entity, the following steps are then taken:
• The parent’s investment in each subsidiary and its portion of the subsidiaries’ equity are eliminated
 

• Minority interests in the profit or loss of consolidated subsidiaries are identified
 

• Minority interests in the net assets of consolidated subsidiaries are identified (consisting of the amount as at the original combination and minority’s share of changes in equity since then).
• Intragroup balances, transactions, income and expenses must be eliminated in full. AASB 112 Income Taxes applies to temporary differences that arise from the elimination of profits and losses from intragroup transactions.
 

• Financial statements of the parent and subsidiaries used must be the same reporting date.
 

• Uniform accounting policies must be used for like transactions and other events in similar circumstances.
 

• Income and expenses of each subsidiary included from the effective date of control.
 

• An investment in an entity must be accounted for in accordance with AASB 139 Financial Instruments: Recognition and Measurement when it is longer a subsidiary, provided that it does not fall within the scope of AASB 128 Investments in Associates or AASB 131 Interests in Joint Ventures.
 

• Minority interests must be presented in the consolidated balance sheet within equity separately from the parent shareholders’ equity.
 

• Minority interests in the group profit or loss must also be separately disclosed, which means that the group profit or loss is allocated between the shareholders of the minority interests and the parent on the face of the income statement.

• In the parent’s separate financial statements, all of its investments in subsidiaries, jointly controlled entities and associates that are not classified as held for sale in accordance with AASB 5 Non-Current Assets Held for Sale and Discontinued Operations must be accounted for as follows:
• at cost, or
 

• in accordance with AASB 139 Financial Instruments: Recognition and Measurement.

• Information about the parent-subsidiary relationship when either the parent does not own more than half the voting power but controls the subsidiary or when the parent owns more than half the voting power but does not control the subsidiary.
 

• Nature and extent of any significant restrictions on transfer of funds from the subsidiary to its parent.
 

• When separate financial statements are prepared, reason why the statements are prepared if not required by law, and a list of significant investments in subsidiaries, associates and jointly controlled entities, with certain details about each.
 

• In relation to not-for-profit public sector entities, where a group of entities that is a reporting entity does not prepare separate financial statements, disclosure of a list of significant subsidiaries, with certain details about each.