IAS 27 Separate Financial Statements - Summary

IAS 27 Separate Financial Statements

IFRS Summaries by Imad Uddin, FRM

Objective

Prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures, and associates when an entity prepares separate financial statements.

Separate financial statements are those presented in addition to consolidated financial statements or in addition to financial statements where investments in associates/JVs are equity accounted (IAS 28). They may also be the only statements prepared if an entity is exempt from consolidation/equity accounting.

Scope

Applies when an entity prepares separate financial statements that comply with IFRS.

Defines separate financial statements as those presented by a parent (or an investor with joint control or significant influence) where investments are accounted for at cost, or in accordance with IFRS 9, or using the equity method (IAS 28).

Does NOT mandate which entities must produce separate financial statements. This is often determined by local regulations.

Does NOT apply to consolidated financial statements (addressed by IFRS 10).

Key Definitions

Term	Meaning
Separate Financial Statements	Those presented by a parent (investor controlling subsidiaries) or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost, or in accordance with IFRS 9 Financial Instruments, or using the equity method as described in IAS 28 Investments in Associates and Joint Ventures.
Consolidated Financial Statements	The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity (governed by IFRS 10).

Separate financial statements are distinct from consolidated statements. They focus on the parent/investor's own financial position and performance, treating investments differently than in consolidation.

Accounting for Investments in Separate Financial Statements

When an entity prepares separate financial statements, it shall account for investments in subsidiaries, joint ventures, and associates either:

At cost; OR

In accordance with IFRS 9 *Financial Instruments* (e.g., at fair value through P&L or OCI); OR

Using the equity method as described in IAS 28 *Investments in Associates and Joint Ventures*.

The entity must apply the same accounting policy for each category of investment (e.g., all subsidiaries measured at cost, all associates measured per IFRS 9).

Investments accounted for under IFRS 9 are not subject to the equity method requirements. Similarly, investments classified as held for sale under IFRS 5 are accounted for under that standard.

Recognition of Dividends

An entity shall recognize a dividend from a subsidiary, a joint venture, or an associate in profit or loss in its separate financial statements when its right to receive the dividend is established.

This applies regardless of the method used to account for the investment (Cost, IFRS 9, or Equity Method). The dividend represents a return on investment.

Group Reorganizations

Specific guidance applies when a parent reorganizes its group structure by establishing a new parent entity above the existing parent ('New Parent'), under specific conditions:

New Parent obtains control of the original parent by issuing equity instruments in exchange for existing equity of the original parent.

Assets and liabilities of the new group and original group are the same immediately before and after.

Owners of the original parent before reorganization have the same relative interests in the net assets of both groups immediately before and after.

If these conditions are met, the New Parent measures its cost of investment in the original parent (in its separate financial statements) at the carrying amount of its share of the equity items shown in the separate financial statements of the original parent at the date of reorganization.

This avoids creating artificial gains or losses purely from the restructuring.

Disclosures Required

Disclosure Requirement	Explanation / Detail
Accounting Policy for Investments	Disclosure of the method chosen (Cost, IFRS 9, or Equity Method) for accounting for investments in subsidiaries, JVs, and associates in the separate financial statements.
List of Significant Investments	Disclosure of a list of significant investments in subsidiaries, joint ventures and associates, including: Name of the investee. Principal place of business (and country of incorporation if different). Proportion of ownership interest held (and proportion of voting power if different).
Method Used	Description of the method used to account for the investments listed above (confirming it aligns with the chosen policy).
Link to Other Statements	When a parent/investor prepares separate financial statements, it must identify the consolidated financial statements (or other statements where equity method is applied) to which they relate, if those statements are prepared.

Disclosures required by IFRS 7 (Financial Instruments), IFRS 12 (Disclosure of Interests in Other Entities), and IFRS 13 (Fair Value Measurement) may also apply depending on the accounting method chosen.

Summary Table - Accounting Options

Investment Type	Accounting Options in Separate Financial Statements
Subsidiaries	Cost OR IFRS 9 OR Equity Method (IAS 28)
Joint Ventures	Cost OR IFRS 9 OR Equity Method (IAS 28)
Associates	Cost OR IFRS 9 OR Equity Method (IAS 28)

The same policy must be chosen for all investments within a single category (e.g., all subsidiaries must use the same method).

Key Judgments and Estimates

Determining the appropriate accounting method (Cost, IFRS 9, Equity Method) for each category of investment, ensuring consistency.

Assessing when the entity's right to receive dividends is established for recognition purposes.

Evaluating the implications of group reorganizations and correctly applying the specific measurement guidance for the new parent's investment cost.

If using Cost method, assessing investments for impairment under IAS 36. If using IFRS 9, applying its measurement and impairment requirements. If using Equity Method, applying IAS 28 requirements.

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