What are the requirements for separate financial statements under IAS 27?

IAS 27 Separate Financial Statements prescribes the accounting and disclosure requirements for investments in subsidiaries, associates, and joint ventures when an entity presents financial statements outside of a full consolidation. When preparing separate financial statements, an entity must account for those investments using one of the permitted measurement bases set out in IAS 27.10: at cost, in accordance with IFRS 9, or using the equity method as described in IAS 28. The same accounting policy must be applied consistently across each category of investments. - Definition and scope: Separate financial statements are those presented in addition to consolidated financial statements, or in addition to the financial statements of an investor that accounts for associates or joint ventures using the equity method (IAS 27.6). Crucially, the financial statements of an entity that has no subsidiary, associate, or joint venture interest are not separate financial statements at all (IAS 27.7). IAS 27 does not mandate which entities must produce separate financial statements — it applies whenever an entity chooses to prepare them in compliance with IFRS (IAS 27.3). - When separate statements may be the only statements: Certain exempted entities may present separate financial statements as their only financial statements. An entity exempted from consolidation under IFRS 10 or from applying the equity method under IAS 28 may do so (IAS 27.8). Similarly, an investment entity required to apply the consolidation exception for all its subsidiaries throughout the current and all comparative periods presents separate financial statements as its only financial statements (IAS 27.8A).

When must a parent present separate financial statements vs. only consolidated statements?

- Measurement policy options: When preparing separate financial statements, the entity shall account for investments in subsidiaries, joint ventures, and associates either at cost, in accordance with IFRS 9, or using the equity method as described in IAS 28 — and must apply the same accounting for each category of investments (IAS 27.10). The equity method option was introduced by the 2014 amendments, effective for annual periods beginning on or after 1 January 2016 (IAS 27.18J). Investments in associates or joint ventures held through venture capital organisations or similar entities may instead be measured at fair value through profit or loss under IFRS 9 (IAS 28.18). - Dividends: Dividends received from a subsidiary, joint venture, or associate are recognised in profit or loss in the separate financial statements when the entity's right to receive the dividend is established — unless the equity method is used, in which case the dividend reduces the carrying amount of the investment (IAS 27.12). - Compliance with all IFRSs: Separate financial statements must be prepared in accordance with all applicable IFRSs (IAS 27.9). This includes impairment testing of investment carrying amounts under IAS 36, which applies to financial assets classified as subsidiaries, associates, and joint ventures (IAS 36.4).

How does the equity method measurement in separate statements differ from the cost method in terms of P&L volatility and investment carrying value?

- Confusing separate and consolidated statements: The separate financial statements show only the parent's direct investment as an asset — they do not combine the assets and liabilities of the group into a single economic entity. Treating them interchangeably with consolidated statements is a fundamental error. - Inconsistent measurement policies: IAS 27.10 requires the same accounting policy across each category of investment. Applying cost to some subsidiaries and the equity method to others within the same category is not permitted. - Missing disclosure requirements: Full IFRS disclosure requirements apply to separate financial statements (IAS 27.15). Where a parent uses the consolidation exemption, it must disclose the fact that the statements are separate financial statements, that the exemption has been used, and identify the consolidated financial statements to which they relate (IAS 27.16). Where no exemption is used, the parent must still identify the related consolidated, IFRS 10, IFRS 11, or IAS 28 financial statements (IAS 27.17).

What are the specific conditions under IAS 27 for exemption from preparation of consolidated statements, and how does this affect separate statement requirement?

- Investment entity disclosures: An investment entity parent preparing separate statements as its only financial statements must disclose that fact and present the investment entity disclosures required by IFRS 12 (IAS 27.16A). - Equity method amendments: Some preparers remain unaware that the equity method became a permitted option in separate financial statements only from 2016. Retroactive application requires care in accordance with IAS 8 (IAS 27.18J). - IAS 27.6 — Defines separate financial statements and when they arise in relation to consolidated or equity-accounted statements. - IAS 27.8 — Permits exempted entities to present separate financial statements as their only financial statements. - IAS 27.9 — Requires separate financial statements to be prepared in accordance with all applicable IFRSs. - IAS 27.10 — Sets out the three permitted measurement bases for investments in separate financial statements (cost, IFRS 9, or equity method). - IAS 27.15 — Requires full IFRS disclosure requirements to apply when preparing separate financial statements. - IAS 27.17 — Requires a parent or investor to identify the related consolidated or equity-accounted financial statements in their separate financial statements.

IAS 27 Separate Financial Statements

IAS 27 Separate Financial Statements — Core Rule

IAS 27 Separate Financial Statements prescribes the accounting and disclosure requirements for investments in subsidiaries, associates, and joint ventures when an entity presents financial statements outside of a full consolidation. When preparing separate financial statements, an entity must account for those investments using one of the permitted measurement bases set out in IAS 27.10: at cost, in accordance with IFRS 9, or using the equity method as described in IAS 28. The same accounting policy must be applied consistently across each category of investments.

How IAS 27 Separate Financial Statements Works

Definition and scope: Separate financial statements are those presented in addition to consolidated financial statements, or in addition to the financial statements of an investor that accounts for associates or joint ventures using the equity method (IAS 27.6). Crucially, the financial statements of an entity that has no subsidiary, associate, or joint venture interest are not separate financial statements at all (IAS 27.7). IAS 27 does not mandate which entities must produce separate financial statements — it applies whenever an entity chooses to prepare them in compliance with IFRS (IAS 27.3).

When separate statements may be the only statements: Certain exempted entities may present separate financial statements as their only financial statements. An entity exempted from consolidation under IFRS 10 or from applying the equity method under IAS 28 may do so (IAS 27.8). Similarly, an investment entity required to apply the consolidation exception for all its subsidiaries throughout the current and all comparative periods presents separate financial statements as its only financial statements (IAS 27.8A).

Measurement policy options: When preparing separate financial statements, the entity shall account for investments in subsidiaries, joint ventures, and associates either at cost, in accordance with IFRS 9, or using the equity method as described in IAS 28 — and must apply the same accounting for each category of investments (IAS 27.10). The equity method option was introduced by the 2014 amendments, effective for annual periods beginning on or after 1 January 2016 (IAS 27.18J). Investments in associates or joint ventures held through venture capital organisations or similar entities may instead be measured at fair value through profit or loss under IFRS 9 (IAS 28.18).

Dividends: Dividends received from a subsidiary, joint venture, or associate are recognised in profit or loss in the separate financial statements when the entity's right to receive the dividend is established — unless the equity method is used, in which case the dividend reduces the carrying amount of the investment (IAS 27.12).

Compliance with all IFRSs: Separate financial statements must be prepared in accordance with all applicable IFRSs (IAS 27.9). This includes impairment testing of investment carrying amounts under IAS 36, which applies to financial assets classified as subsidiaries, associates, and joint ventures (IAS 36.4).

IAS 27 Separate Financial Statements — Common Pitfalls

Confusing separate and consolidated statements: The separate financial statements show only the parent's direct investment as an asset — they do not combine the assets and liabilities of the group into a single economic entity. Treating them interchangeably with consolidated statements is a fundamental error.

Inconsistent measurement policies: IAS 27.10 requires the same accounting policy across each category of investment. Applying cost to some subsidiaries and the equity method to others within the same category is not permitted.

Missing disclosure requirements: Full IFRS disclosure requirements apply to separate financial statements (IAS 27.15). Where a parent uses the consolidation exemption, it must disclose the fact that the statements are separate financial statements, that the exemption has been used, and identify the consolidated financial statements to which they relate (IAS 27.16). Where no exemption is used, the parent must still identify the related consolidated, IFRS 10, IFRS 11, or IAS 28 financial statements (IAS 27.17).

Investment entity disclosures: An investment entity parent preparing separate statements as its only financial statements must disclose that fact and present the investment entity disclosures required by IFRS 12 (IAS 27.16A).

Equity method amendments: Some preparers remain unaware that the equity method became a permitted option in separate financial statements only from 2016. Retroactive application requires care in accordance with IAS 8 (IAS 27.18J).

IAS 27 Separate Financial Statements — Key Paragraphs

IAS 27.6 — Defines separate financial statements and when they arise in relation to consolidated or equity-accounted statements.
IAS 27.8 — Permits exempted entities to present separate financial statements as their only financial statements.
IAS 27.9 — Requires separate financial statements to be prepared in accordance with all applicable IFRSs.
IAS 27.10 — Sets out the three permitted measurement bases for investments in separate financial statements (cost, IFRS 9, or equity method).
IAS 27.15 — Requires full IFRS disclosure requirements to apply when preparing separate financial statements.
IAS 27.17 — Requires a parent or investor to identify the related consolidated or equity-accounted financial statements in their separate financial statements.