AAOIFI Financial Accounting Standard No. (23) Consolidation @ Glance

Introduction to Consolidated Financial Statement 

Consolidated financial statement is a financial statement for a group of entities prepared and presented as those for a single entity. The group is made up a company (parent) which control the operational and financial policies, with of sole aim of deriving benefits, of another company(s) called subsidiary(s).


Determination and Scope of Consolidated Financial Statements

  • Consolidation is presumed whenever there is control. Control is when there at least 50% interest in voting right in another entity. It should be noted that control may be presume to exist even if there is less than 50% but there is agreement with the entity’s other shareholders or the entity itself; rights arising from other contractual arrangements; IFI’s voting rights (de facto power); and potential voting rights.
  • Voting rights in an entity include those that are accorded through shares or other equity or financing instruments as well as those that are obtained through agreement with the entity’s other shareholders or the entity itself.
  • The consolidation of a subsidiary is required regardless of the nature of activities of the said entity.
  • The IFI shall cease to account for investment in subsidiary when IFI is no longer able to exercise control over the investee entity.


Presentation of Consolidated Financial Statements

  • An IFI is required to prepare and present consolidated financial statements, consolidating its own separate financial statements with those of its subsidiaries.
  • In accordance with local regulations and/or on its own volition, an IFI may also present its own separate financial statements, which do not consolidate those of its subsidiaries. 
  • The separate financial statement shall be accompanied by the consolidated financial statements.


Consolidation Procedures

  • Consolidated financial statements shall be prepared by combining the financial statements of the IFI with those of the subsidiaries. This shall be carried out through adding like items line by line.
  • Intragroup transactions between the IFI and the subsidiaries shall be eliminated.
  • The carrying amount of the IFI’s investment in the subsidiaries and the IFI’s portion of equity in those entities shall be eliminated with a resultant goodwill.
  • Non-controlling interests in statement of financial position (the balance sheet) shall be identified and reported as part of total equity.
  • In preparing the consolidated financial statements, the same accounting policy shall be applied to the financial statements that are subject to consolidation (i.e., those of the parent entity, and the subsidiary) and the consolidated financial statements.
  • The financial statements that are subject to consolidation (i.e., those of the parent entity and the subsidiary) shall be prepared as at the same reporting date and for the same length of reporting period. If it is not practicable for all the financial statements to be prepared as at the same reporting date, the difference between the reporting date of the financial statements of subsidiaries and those of the parent shall be no more than three months. In such cases, significant transactions that occur between the reporting dates of the financial statements of subsidiaries and those of the parent shall be adjusted in the consolidated financial statements.
  • The income and expenses of a subsidiary must be consolidated in the IFI’s consolidated financial statements from the date of the acquisition of that entity by the IFI.
  • The consolidated financial statements must have the same reporting currency for all transactions and operations.
  • If a parent ceases to classify a subsidiary as one where control was intended to be temporary, the financial statements of the subsidiary shall be consolidated on a line-by-line basis for all periods presented. The amounts for prior periods shall be mentioned as restated.


Disclosure Requirements

  • List of subsidiaries with accompanying details including:
  1. Names
  2. Nature of business activities
  3. Country of incorporation
  4. The IFI’s shareholding (directly or indirectly through other entities)
  5. The IFI’s level of voting rights (directly or indirectly through other entities)
  6. Basis of IFI’s control over subsidiary
  • List of entities in which the IFI will potentially have more than 50% of the voting rights in the future through voting rights that are not currently-exercisable but will be exercisable in the future. 
  • Disclosures on significant restrictions regarding financial or commercial transactions or shareholding relationship between any of the subsidiaries and the IFI as well as between any of the subsidiaries themselves. 
  • Disclosure of details of entities where control is intended to be temporary. 
  • In cases where an IFI’s investment in a subsidiary also includes a component funded by restricted investment accounts, such noncontrolling interests shall be identified and included as part of the “Non-controlling Interests” in both Consolidated Balance Sheet and notes to the financial statements.


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Dr. Anifowose Mutalib
Technical Director,

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