The difference in consolidation approach between IFRS and US GAAP is a notorious one that is often cited as an example of the US preference for ‘bright line’ rules rather than professional judgement. The US requirement is based on a 1959 accounting standard which says that you must consolidate all companies that you control, and goes on to say that if you own more than 50% of the shares, then you must consolidate. This rule was written in a context of people trying not to consolidate companies where they owned more than 50% of the shares and does not rule out that you could control with less than 50% of the votes. However, practice established the 50% ownership as a bright line and all subsequent attempts by the FASB to move to a more judgemental approach have failed. A new attempt was made between 2009 and 2011 to introduce the IASB control notion without the 50% bright line. However, US respondents objected to this, saying that instances of control with less than 50% of the votes and without any supporting contractual framework did not exist in the UK. This therefore remains a difference.

Against this, the international standard (IAS 27 Consolidated and Separate Financial Statements, soon to be replaced with a new standard, IFRS 10) talks about control as the ability to affect the financial and operating decisions of the investee company. One could add that the European Seventh Company Law Directive (1983) is also based on the notion of economic control not necessarily ...

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