General Principles
Consolidated Reporting
Appendix 1. Sample Consolidation Entries

General Principles of Software Use

The steps to obtain IFRS financial statements:

  1. Add a new company. If this is the first firm, the dialog box for adding it will appear immediately after you log in. If it is not the first company - add it through Settings - Firms and reporting periods.
     
  2. Add the reporting period. If this is the first IFRS reporting, please note the following. For example, we make the reporting for 2022. This means that the first year is 2021, otherwise we won't have comparable data for last year in 2022 reporting. Therefore, when creating a period, check "Create comparable prior year period" - the software will create two periods, 2021 and 2022.
     
  3. If you want to have your statements in the currency other than the functional currency, after the period is specified you can add the exchange rate of such currency to the functional currency (for each reporting period you need 3 exchange rates: opening rates, closing rates and weighted average for the period).
     
  4. Fill in the table with numerical data (IFRS section) and text notes.

Attention! When filling in the Balance Sheet, first enter the data in the column for the end of the previous year, and then fill in the column for the current date. By entering data as of an earlier date, you actually change the balances for a later date. Don't forget to save the form after filling it out (see the button at the top of the page). To change periods, use the Current Period drop-down list at the top of the screen. There you can also select the company you want to work with from the list.
Fill in only those sections (tables, line items) that present data applicable to your company. If you do not have any biological assets, simply leave the section blank. Blank sections, tables, and line items/columns in the tables will not be printed and will not overload your report.

  1. When filling in the tables, please pay attention to the following two points:

a) Data input. You can enter data both starting with Total and in a regular way, starting with amount components. If you enter data to Total line item, you will not disturb the formula - this is our know-how. However, if your sum is inconsistent, cells will turn red.

b) Highlighted cells. If a cell turns red, it means that there is inconsistency of amount in the formula, or you have entered various values for one and the same indicator in different places. It is necessary to remedy it. If a cell turns yellow - it means warning, which signifies that tables contain such indicator breakdown and you need to fill it out (for instance, fixed assets breakdown by their types).

Attention! If a cell turns red or yellow, you can understand where inconsistency is by right clicking "troubled" cell and choosing "Show by formulas". You will see, how the indicator is made up of all formulas available for it, and if there is inconsistency, you will see it. If a cell is red, i.e. formula doesn't match, but you are not certain if the error is in the sum, rather than in its members, you can choose "Recalculate" in the menu - the number in the cell will be automatically recomputed as a sum of members.

  1. If you need to make adjustment entry to reporting, go to "Adjustments" section. Of course, you can change any number manually without using the adjustment entries mechanism. But when you make changes through adjustments, it is guaranteed that you will not disturb the consistency of totals and tables. Adjustment entries are made as it is common for accounting software: Debit - Credit. At the same time, the software will ask you for the necessary data, such as debit and credit analysis (similar to sub-accounts), in order to record adjustment records not only on the main reporting forms, but also in the notes, so that all formulas remain intact.

When making adjustment entries, please note the following. If you report quarterly instead of annually, the adjustment entry made in the 1st quarter will not affect the reports for 6 months, 9 months and a year. This means that within a year, adjustment entries are not carried over from one quarter to the next, but must be made again. At the same time, annual adjustments affect not only the current, but also all subsequent financial statements: asset or liability balances are recorded there, subject to adjustment entries.

The following line items of two main types of financial statements are used as debit and credit accounts when adjusting entries are made: Statement of Financial Position and Statement of Comprehensive Income. As a matter of fact, we work with the IFRS chart of accounts, which is minimal and sufficient, and at the same time very clear, so that it is obvious where the adjustment entry goes in the reporting. For the sake of simplicity, accounts (financial statement items) in the list are preceded by a form symbol:

  • FP - Statement of Financial Position item;
  • PL - Profit and Loss Statement Item;
  • OCI - other comprehensive income.

For example, adjustment entry that reduces cost of sales and increases Inventories: Dr FP: Inventories – Cr PL:Cost of sales

  1. IFRS reporting includes not only a large number of figures, but also descriptive part. The software has blocks specifying the information to be disclosed. Fill them out, leaving out those that are not applicable to your firm.
     
  2. The report is ready. If you wish to specify foreign currency exchange rates for the relevant reporting periods, you can select this currency in the options. The statements will automatically be displayed in the foreign currency and the line items with the translation difference will appear.

Attention! If you are wondering what the components of the number in the cell are, right-click on the cell and choose "Itemize number".

  1. To summarize a report based on all tables, press the " Ready report " button (located on the options bar at the top of the page in the IFRS section).

 

Consolidated Reporting

IFRT enables the preparation of consolidated financial statements, which significantly saves the user's time. The software is built on the principle: to perform technical work related to consolidation reporting (to sum up the items of the subsidiary's report, which must be added to the parent company's report according to IFRS rules) and at the same time to limit the essential interference in the consolidation process (the user is to decide whether goodwill arises, in what amount, whether non-controlling interests should be recorded, etc.). I.e. the calculator principle is used: to help the user, but not to try to be smarter than the user. The program assumes two consolidation methods: equity method and purchase method (full consolidation). The approach is as follows:

  • In the case of equity method, no data from the associated company's reporting is automatically transferred to the parent company's reporting. In the parent company's reporting, the user records changes in investments, profit share and other comprehensive income of the subsidiary through adjusting entries. In the case of equity method, the reporting is not consolidated line by line, but only some of the consolidation entries are necessary, which the user makes at his own discretion (for example, see below).
  • In the case of full consolidation, the software consolidates parent and subsidiary financial statements line by line, adding up all indicators except for equity, and then gives the user a chance to adjust the consolidation - to record goodwill, non-controlling interests, part of retained earnings and other comprehensive income. In other words, the software doesn't force you to accept its calculations, but does all the technical work involved in adding up multiple reporting figures.

Now let us see in detail, how it looks in the software step by step.

1. First of all, in order to start consolidated reporting, you should eliminate all errors (inconsistencies in indicators) that the software displays (red and yellow cells). Even a "yellow" warning can lead to errors in the consolidated report.

2. Then you need to specify that company A is a subsidiary (or associate) of company B in the period settings. Go to Settings - Companies and Reporting Periods, open the list of reporting periods for A firm. Select the period in which the company was (became or ceased to be) a subsidiary. Press to edit the period. In the record we can see the Parent company field. Select parent company in the list, and then there will be 3 additional fields:

  • Consolidation method at the beginning of the year (select the consolidation method used at the beginning of the year, it is always the same as the one used at the end of the previous year);
     
  • Consolidation method at the end of the period (select the consolidation method used at the end of the reporting period);
     
  • Number of months of ownership of the subsidiary in the reporting period (applicable to the purchase method if the subsidiary appeared or ceased to exist in the current reporting period; you need to specify the number of months of ownership). The software uses this value to calculate the ratio for adding subsidiary turnover indicators to the parent company's data.

3. Now the program knows that firm B is a parent company. This means that its reports can be viewed in two modes: a) as individual reports; b) as consolidated reports. The switch - Consolidated statements checkbox - can be found on the toolbar of all IFRS reporting pages for the parent company.

4. Open IFRS reporting. Select the Consolidated Statements checkbox.

If you use the equity method, you won't see any changes in the reporting figures of the parent company. In case of such consolidation, it is enough to make some adjustment entries that the software leaves to the user's discretion (see the example of such entries below). In the Adjustments section you can make adjustment entries for the parent company with the Adjustment entry for Consolidation checkbox (that is why it is useful to point out to the software that there is a subsidiary company). Such adjustments will be visible only in consolidated reporting (i.e. when the box is checked), and they are adjustments for recording the results of consolidation.

If you use the purchase method (full consolidation), you will see that the parent company's financial statements will be supplemented with the subsidiary's financial statements according to the following algorithm when you check the Consolidated statements box:

a) All monetary key figures of the subsidiary, except the key figures of the Equity section, are summed up row by row.

b) In order not to disturb the total due to the zeroing of the subsidiary's Equity, all line items of the subsidiary's Equity are collapsed to several indicators, which are added to such line items in the parent's reporting. This can be seen in the Statement of Changes in Equity, where the following is done for the subsidiary reporting data:

  • Opening retained earnings is the total equity of the subsidiary at the beginning of the year (A).
     
  • Retained Earnings indicatorin Earnings (Loss) and Other Comprehensive Income line items for the period become equal to the total of Earnings (Loss) (B) and Other Comprehensive Income respectively. (C)
     
  • All changes in subsidiary equity that occur within the reporting period, other than Earnings (Loss) and Other Comprehensive Income recognized above are recorded to the Retained Earnings inline items Increase (Decrease) Through Other Changes (D).
     
  • As a result, the ending Retained Earnings will consist of the total equity of the subsidiary at the end of the period (E). The preparation of the Statement of Changes in Equity clearly described above can be delineated as follows for the purpose of combining it with parent company reporting:

The preparation of the Statement of Changes in Equity clearly described above may be delineated as follows for the purpose of combining it with parent company reporting:


Then, according to indicators B, C, and D, you need to record non-controlling interests with goodwill entries, remove investments, etc. in consolidated reporting (see example below).

c) When summing up all turnover indicators (revenue, profit, fixed assets receipts and disposals etc.) the software multiplies source subsidiary data by ratio = number of months of subsidiary possession / number of months in the reporting period. For instance, if subsidiary is in possession for six months, the ratio in annual reporting is 0.5. This is applicable, if subsidiary was purchased or disposed of within such reporting period. Therewith, in order to retain consistency in Opening Balance + Turnover = Closing Balance, the difference that appears as a result of multiplying by ratio, is recorded to line items of other receipts and disposals, property (liabilities).

d) If a subsidiary has been acquired or disposed of during the current period, the balances from the subsidiary's reporting at the end and beginning of the period are added to the current period's turnover in the same "balancing" line items as in cl. c).

The steps described in a) to d) are automatically carried out by the software when opening any report consolidated by the purchase method. Such changes are not stored in the database, but are performed each time the consolidated report is displayed. Knowing and understanding this, you can bring the consolidated reporting fully in line with IFRS by making several adjustment entries (depending on your specific circumstances) (cl. 5).

5. The software "technically" aggregates the reporting: it preserves the accuracy of the bottom line and the consistency of the indicators. However, this consolidated reporting is not final, you need to adjust key reporting indicators and make consolidation entries. Such entries are made as adjustment entries of the parent company (section Adjustment Entries); do not forget to check the box Adjustment Entry for Consolidation, otherwise the entries will not be displayed in the individual parent company's reporting, thus misrepresenting it. Below are examples of such adjustments in Appendix 1.

6. It is necessary to eliminate intercompany transactions using adjustment entries. We also need to make such entries by selecting the Adjustment entry for Consolidation checkbox, so that they are displayed only in the consolidated reporting.

 

Appendix 1. Sample Consolidation Entries

Equity Method: Consolidation Entries

Since in case of equity method the software doesn't transfer any figures from associates' reports to the parent company's reports, the entire consolidation is done by adjusting entries (which may be different in each case, so the user should make them with due care):

Debit

Credit

Comment

FP: Investments accounted for using equity method

FP: Retained earnings
Increase (decrease) through other changes, equity

If this is your first reporting in the software and associate already existed as of the beginning of the year, you need to record investments through opening balance (entry).

FP: Investments accounted for using equity method

FP: Retained earnings

Comprehensive income

Comprehensive income attributable to owners of parent

Profit (loss)

Profit (loss) attributable to owners of parent

Profit (loss) from continuing operations

Profit (loss) before tax

Share of profit (loss) of associates and joint ventures accounted for using equity method

Record the associate's share of profit for the reporting period, which is referred to parent.

FP: Investments accounted for using equity method

FP: Retained earnings

Comprehensive income

Comprehensive income attributable to owners of parent

Other comprehensive income

Other comprehensive income that will not be reclassified to profit or loss, net of tax

Share of other comprehensive income of associates and joint ventures accounted for using equity method that will not be reclassified to profit or loss, net of tax

Record the associate's share of comprehensive income for the reporting period, which is referred to parent.

FP: Investments accounted for using equity method

FP: Retained earnings

Increase (decrease) through other changes, equity

Changes in investments to the associate as a result of other changes in equity (other than above).

 

Purchase method: consolidation entries 

In the case of purchase method (full consolidation), the software automatically consolidates parent and subsidiary financial statements on a technical level (i.e. using basic IFRS rules), as described above. The user's goal is to make adjusting entries to account for goodwill, non-controlling interests, and to remove investments from the balance sheet. Such entries are made in accordance with equity indicators B, C, D (see the image above). Below are the sample entries (they may be different in each case, so the user should make them with due consideration):

Debit

Credit

Comment

FP: Goodwill

Additional recognition, goodwill

Gross carrying amount, goodwill

[Goodwill from business combination]

FP: Retained earnings

Increase (decrease) through other changes, equity

Establish goodwill. Entry is made once, when subsidiary is purchased. If the purchase took place before you started making reporting in the software, amount is recorded as an opening balance. As you can see in the entry, in Credit we use D indicator, which incurred a balancing amount as a result of technical consolidation of reporting by the software.

FP: Investments in subsidiaries, joint ventures and associates

Investments in subsidiaries

FP: Retained earnings

Increase (decrease) through other changes, equity

Reversing entry (negative entry amount). We need to remove investments made to subsidiary from the balance sheet, which are recoded to parent's non-current assets.

FP: Retained earnings

Increase (decrease) through other changes, equity

FP: Non-controlling interests

Increase (decrease) through other changes, equity

If the subsidiary is purchased within the period, when no reporting has yet been made in the software, it is necessary to specify minority interest in balances pursuant to ownership interest by making incoming entry.

FP: Investments in subsidiaries, joint ventures and associates

Investments in subsidiaries

FP: Retained earnings

Increase (decrease) through other changes, equity

If the amount of the investment in the subsidiary has changed on the parent's balance sheet during the reporting period (for example, the ownership interest has increased), you must add this difference to the consolidated balance sheet.

FP: Retained earnings

Comprehensive income

Comprehensive income attributable to owners of parent

Profit (loss)

Profit (loss) attributable to owners of parent

Profit (loss) from discontinued operations

FP: Non-controlling interests

Comprehensive income

Comprehensive income attributable to non-controlling interests

Profit (loss)

Profit (loss) attributable to non-controlling interests

Profit (loss) from discontinued operations

Post the portion of the current period's retained earnings to non-controlling interest.

Asterisk in the entries means that they are reversing entries, which do not affect the essence (as they are used both in debit and credit, amount will pass through), but they are required to be selected when making entries pursuant to calculation dependencies.

Note that this and the following entries not only transfer amounts in the Statement of Changes in Equity, but also ensure that retained earnings and other comprehensive income are transferred from owners to minority interests in the Statement of Profit and Loss and the Statement of Comprehensive Income.

FP: Retained earnings

Comprehensive income

Comprehensive income attributable to owners of parent

Other comprehensive income

Other comprehensive income that will not be reclassified to profit or loss, net of tax

Share of other comprehensive income of associates and joint ventures accounted for using equity method that will not be reclassified to profit or loss, net of tax

FP: Non-controlling interests

Comprehensive income

Comprehensive income attributable to non-controlling interests

Other comprehensive income

Other comprehensive income that will not be reclassified to profit or loss, net of tax

Share of other comprehensive income of associates and joint ventures accounted for using equity method that will not be reclassified to profit or loss, net of tax

Similar to the previous entry, we simply allocate the portion of other comprehensive income to non-controlling interests.

FP: Retained earnings

Increase (decrease) through other changes, equity

FP: Non-controlling interests

Increase (decrease) through other changes, equity

If there has been a change in ownership during the period, we must allocate minority interest to the special line item in the Statement of Changes in Equity.

FP: Retained earnings

Increase (decrease) through other changes, equity

FP: Retained earnings

Increase (decrease) through changes in ownership interests in subsidiaries that do not result in loss of control, equity

Similar to the previous entry, but for parent owners.

FP: Retained earnings

Increase (decrease) through other changes, equity

FP: Non-controlling interests

Increase (decrease) through other changes, equity

Allocate the remaining difference not included in the previous three entries to non-controlling interests.

 

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