1 Groups and consolidation: an overview

unless
 
it can 
be clearly shown that this is not the case. 
Significant influence can be presumed 
not
 
to exist if the investor holds 
less than 20% 
of the voting 
power of the entity, unless it can be demonstrated otherwise.
The 
existence of significant influence 
is usually evidenced in one or more of the following ways. 
(a) 
Representation on the 
board of directors 
(or equivalent) of the investee 
(b) 
Participation in the 
policy making process 
(c) 
Material transactions 
between investor and investee 
(d) Interchange 
of 
management personnel 
(e) Provision 
of 
essential technical information 
(IAS 28, paras. 5–6)
 
3.2 Equity method
IAS 28 requires the use of the 
equity method 
of accounting (or 'equity accounting')
 
for investments in 
associates (with certain exceptions, but these are beyond the scope of this syllabus). (IAS 28, para. 16)
3.2.1 Consolidated statement of profit or loss 
The basic principle of equity accounting is that the investing company (P Co) should take account of its 
share of the earnings 
of the associate, A Co, whether or not A Co distributes the earnings as dividends.
P Co achieves this by adding to consolidated profit the 
group's share of A Co's profit after tax
. 
 EXAM FOCUS POINT 
In your exam, you may be asked to define significant influence or to determine whether an entity is an 
associate. The ACCA examining team has commented that students need to be able to describe the 
principle of equity accounting.
Furthermore, in the January to June 2015 exam report, the ACCA examining team re-iterated that 
candidates need to have an understanding of IAS 28, in particular the application of equity accounting.
BPP Tutor Toolkit Copy

---

CHAPTER 23
//
INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS