Example: entering an accounting and tax consolidated group
As at 30 October 2020, C Coy is the head company of a tax consolidated group comprising of C Coy and Sub C Coy. C Coy is also the ultimate Australian parent and is not an investment entity for accounting purposes. On 31 October 2020, Sub C Coy purchases D Coy, which joins the tax consolidated group. In addition, the group comprising C Coy, Sub C Coy and D Coy is a reporting entity for accounting purposes.
All entities in Group A use a financial reporting period and substituted accounting period (SAP) ending on 31 December. All onshore entities in Group A are grandfathered large proprietary companies.
C Coy, Sub C Coy and D Coy are consolidated into Overseas Coy’s financial statements for the financial reporting period ending on 31 December 2020 and the consolidated financial statements show an income of more than A$1 billion. As such, C Coy, Sub C Coy and D Coy are CBC reporting entities for the 2020–21 income year.
C Coy prepares consolidated financial statements. None of the entities in the tax consolidated group lodge a GPFS with ASIC for the financial reporting period ending on 31 December 2020.
C Coy is required to give us a GPFS for the 2020–21 income year. As C Coy, Sub C Coy and D Coy are required to prepare financial reports under Part 2M.3 of the Corporations Act, Australian Accounting Standards apply in relation to them.
Further, as C Coy is a member of Group A that is consolidated for accounting purposes, C Coy can either lodge a stand-alone GPFS or a consolidated GPFS that consolidates Sub C Coy and D Coy under paragraph 3CA(5)(b).
If it lodges a stand-alone GPFS, C Coy is required to prepare it in accordance with AASB 127 to account for C Coy’s investment in its subsidiaries.
For a parent entity, separate financial statements prepared in accordance with AASB 127 are statements in addition to the consolidated financial statements prepared by the entity, unless it is exempt from consolidation under AASB 10. As C Coy is the ultimate Australian parent and the group comprising C Coy, Sub C Coy and D Coy is a reporting entity, the exemption in paragraph 4 of AASB 10 does not apply to C Coy (see, in particular, paragraph Aus4.2 of AASB 10).
C Coy can prepare a stand-alone GPFS, as an addition to the consolidated financial statements that it already prepares under AASB 10. C Coy needs to identify in the stand-alone GPFS the consolidated financial statements it prepared, and comply with the other requirements in AASB 127 when preparing the stand-alone GPFS. Such consolidated financial statements would typically be presented as additional columns alongside the stand-alone financial statements, with an accounting policy note stating that the entity is the parent entity.
Alternatively, C Coy may give us a consolidated GPFS, which consolidates both Sub C Coy and D Coy in accordance with AASB 10.
Sub C Coy is not required to give us a GPFS because, as a subsidiary member of a tax consolidated group, it is not required to lodge an income tax return.
D Coy is required to give us a GPFS for the 2020–21 income year, because it is a CBC reporting entity and is required to lodge an income tax return as it was not a member of a tax consolidated group for part of the year. As D Coy is a member of Group A, it can give us a stand-alone GPFS or the consolidated GPFS prepared by C Coy. If D Coy prepares a stand-alone GPFS, it is not required to apply AASB 127 given that it has no investment in subsidiaries. D Coy is not required to prepare consolidated financial statements as AASB 10 does not apply.
End of example
Example: exiting an accounting and tax consolidated group
As at 30 October 2020, E Coy is the head company of a tax consolidated group comprising E Coy, Sub E Coy and F Coy. E Coy is also the ultimate Australian parent and is not an investment entity for accounting purposes. Further, the group comprising E Coy, Sub E Coy and F Coy is not a reporting entity for accounting purposes.
On 31 October 2020, Sub E Coy undertakes a demerger by transferring all of its shares in F Coy to the shareholders of its ultimate parent (Foreign Coy) and F Coy leaves the tax consolidated group. Foreign Coy also loses control of F Coy for accounting purposes as a result of the demerger.
All entities in Group B and F Coy use a financial reporting period and SAP ending on 31 December.
E Coy and Sub E Coy are consolidated into Foreign Coy’s financial statements for the financial reporting period ending on 31 December 2020. Foreign Coy’s consolidated financial statements show an income of more than A$1 billion, and as such E Coy and Sub E Coy are CBC reporting entities for the 2020–21 income year.
Consolidation of F Coy by Foreign Coy for accounting purposes ceased in accordance with accounting standards applied in Foreign Coy’s country after F Coy was demerged. As such, F Coy is no longer a member of Group B that is consolidated for accounting purposes, for the purposes of paragraph 960-555(2)(a) of the ITAA 1997. F Coy’s financial statements show an income of less than A$1 billion for the year ended 31 December 2020 and as such F Coy is not a CBC reporting entity for the 2020–21 income year.
E Coy, Sub E Coy and F Coy are required to prepare financial reports under Part 2M.3 of the Corporations Act. As such, Australian Accounting Standards apply in relation to these entities. None of the entities lodge a GPFS with ASIC for the financial reporting period ending on 31 December 2020.
E Coy is required to give us a GPFS for the 2020–21 income year. As E Coy is a member of Group B, E Coy can prepare a stand-alone GPFS or a consolidated GPFS that consolidates Sub E Coy under paragraph 3CA(5)(b).
If it prepares a stand-alone GPFS, E Coy is required to prepare it in accordance with AASB 127 to account for E Coy’s investment in Sub E Coy.
The group comprising of E Coy and Sub E Coy is not a reporting entity, and E Coy’s ultimate parent (Foreign Coy) produces consolidated financial statements that are available for public use and comply with IFRS. As such, while E Coy is the ultimate Australian parent it can avail itself of the exemption provided in paragraph 4 of AASB 10, from preparing consolidated financial statements, provided all other conditions for the exemption to apply are satisfied. This means that E Coy can prepare a stand-alone GPFS in accordance with AASB 127.
If E Coy instead prepares a consolidated GPFS, this statement needs to consolidate Sub E Coy and be prepared in accordance with Australian Accounting Standards.
As Part 2M.3 applies to E Coy, it is not able to give us the consolidated financial statements prepared by Foreign Coy to fulfil its GPFS obligation, unless the consolidated financial statements are prepared in accordance with Australian Accounting Standards.
Sub E Coy is not required to give us a GPFS as it is a subsidiary member of a tax consolidated group and is not required to lodge an income tax return.
While F Coy is required to lodge an income tax return for the 2020–21 income year, it is not required to give us a GPFS because it is not a CBC reporting entity for that income year.
End of example