Technical helpsheet and flowchart to help members understand the limited situations in which a subsidiary may be excluded from consolidation under FRS 102 and the accounting treatment for such subsidiaries.
This helpsheet has been issued by ICAEW’s Technical Advisory Service to help members understand the limited situations in which a subsidiary may be excluded from consolidation under FRS 102 and the accounting treatment for such subsidiaries.
Members may also wish to refer to the following related helpsheets:
Where a parent entity is required to prepare consolidated accounts (see Accounting for groups under FRS 102), as a general rule, both the Companies Act 2006 and FRS 102 require that all subsidiaries are included within the consolidation.
The Companies Act 2006 s405 does, however, offer a number of situations in which subsidiary undertakings are permitted to be excluded from consolidation. FRS 102 narrows the scope of these exclusions to the very limited circumstances set out in the following flowchart.
Accounting for subsidiaries excluded from consolidation
Where a subsidiary is excluded from consolidation, it is necessary to consider how to account for the subsidiary.
Excluded due to immateriality
If a subsidiary is excluded from consolidation on the grounds of immateriality, whilst users are unlikely to be influenced by the accounting for the subsidiary, the subsidiary should be accounted for in accordance with FRS 102 paragraph 9.26 which enables a choice of accounting policy between:
- Cost less impairment; or
- Fair value with changes recognised in other comprehensive income (OCI); or
- Fair value with changes in fair value recognised in profit or loss.
Whichever accounting policy is adopted, it must be applied consistently to all such subsidiaries.
Excluded due to severe long term restrictions
A subsidiary excluded from consolidation on the grounds of severe long term restrictions shall be accounted for in accordance with FRS 102 paragraph 9.26 (as above), except where the parent still exercises a significant influence over the subsidiary, in which case the parent should treat the subsidiary as an associate using the equity method as set out in FRS 102 paragraph 14.8 (FRS 102 paragraph 9.9B).
Excluded due to being held exclusively with a view to resale
A subsidiary excluded from consolidation on the grounds that the subsidiary is held exclusively with a view to subsequent resale shall be measured at fair value through profit and loss if it is held as part of an investment portfolio, otherwise the requirements of FRS 102 paragraph 9.26 apply (as above) (FRS 102 paragraph 9.9C).
If in doubt seek advice
ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.
© ICAEW 2021 All rights reserved.
ICAEW cannot accept responsibility for any person acting or refraining to act as a result of any material contained in this helpsheet. This helpsheet is designed to alert members to an important issue of general application. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point.
ICAEW members have permission to use and reproduce this helpsheet on the following conditions:
- This permission is strictly limited to ICAEW members only who are using the helpsheet for guidance only.
- The helpsheet is to be reproduced for personal, non-commercial use only and is not for re-distribution.
For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. For further details visit icaew.com/tas.
- 01 Dec 2015 (12: 00 AM GMT)
- First published
- 02 Feb 2021 (02: 35 PM GMT)
- Changelog created, helpsheet converted to new template
- 02 Feb 2021 (02: 36 PM GMT)
- Updated for proposed Brexit related changes and removed refs to Sept 2015 version of FRS 102.
- 29 Oct 2021 (12: 00 PM BST)
- Helpsheet reviewed, no changes to content.