Issues of Control in Accounting: A Comparative Analysis of IAS 27 and IFRS 10

Abstract

Subsidiaries identification has always been a contentious issue in consolidation of financial statements and till date is one of the most challenging issues accounting standard setting bodies such as the International Accounting Standards Board (IASB) have to contend with. The global financial crisis of 2007 and some prominent accounting scandals in recent history e.g., the Enron saga, have remarkably demonstrated the consequences of wrong application of consolidation rules on entities, investors, and other stakeholders. International Accounting Standard (IAS) 3 – Consolidated financial statements and IAS 27 – Consolidated and separate financial statements were respectively issued in 1976 and 1989 by the International Accounting Standards Committee (IASC) to address these controversies. Additionally, In May 2011, the IASB which replaces the IASC in 2001, published International Financial Reporting Standards (IFRS) 10 which came-up with a revised consolidation model replacing the provisions of IAS-27 and SIC-12. However, the consolidation criteria in IFRS 10 were adjudged as difficult to understand, even amongst experts and even more challenging to apply in practice. IFRS-10 is principled-based and is not only broader and more complex than IAS-27 and Standards Interpretation Committee (SIC) 12, but the structure remains questionable. In addition, the provisions of IFRS 10 contained several terms that were undefined and unspecified which are capable of subjective interpretation and application. In-depth understanding of the new provisions of IFRS 10 and its basic concepts are necessary to achieve the objective of the revised standard. Lack of adequate understanding of the new rules and its basic concepts will practically make it impossible to properly apply the new consolidation criteria. The research methodology adopted is therefore to review relevant literatures, practical and professional assertions by contrasting and comparing the provisions of the two standards.