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An Executive Guide to IFRS: Content, Costs and Benefits to Business by Peter Walton

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CHAPTER 3

INVESTMENTS IN OTHER COMPANIES

This chapter reviews the standards dealing with consolidation and business combinations. It deals with the definition of control, which determines what companies are included as subsidiaries. It also looks at the rules for translation of the statements of foreign subsidiaries. It then looks at the standards on business combinations, associated companies, joint ventures and investments in equities. The chapter includes an appendix on fair value measurement.

As discussed in Chapter 2, the reporting entity is defined as all the businesses that are under a unified control. As a consequence IFRS financial statements are necessarily consolidated statements and must include all the other businesses in which the holding company has an interest. The way in which a company accounts for its investments in other companies is therefore fundamental to IFRS financial statements. In practice, this is covered in a series of different standards. Like many other things, this area is undergoing change and replacement standards should be in place with an application date around 2013. This chapter will deal with the standards currently in force, and then go on to outline the probable changes, which are more likely to affect disclosures than recognition and measurement.

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