IAS 27
Active
Separate Financial Statements
Prescribes the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements.
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Conceptual Framework Linkage
Why a legal entity might report differently from its group
The Conceptual Framework's REPORTING ENTITY concept recognises that consolidated statements represent the ECONOMIC group as a single unit, while a parent's own SEPARATE financial statements represent the LEGAL entity in isolation. IAS 27 exists to prescribe accounting for investments in subsidiaries, joint ventures, and associates when a parent chooses (or is required by local law) to present both.
HOW IAS 27 MAPS TO THE FRAMEWORK
Reporting entity boundary – separate financial statements deliberately do NOT consolidate; they report the parent's investment as a single-line item, reflecting the LEGAL entity's own resources and claims Comparability – offering only three permitted measurement options (Section 4) preserves comparability across entities that choose to prepare separate statements Faithful representation – separate financial statements are explicitly NOT a substitute for consolidated statements when consolidation is otherwise required
A very common point of confusion: "separate" financial statements are NOT the same as "individual" or "unconsolidated" financial statements of an entity with NO subsidiaries – IAS 27 specifically addresses financial statements presented IN ADDITION TO consolidated statements, by an entity WITH investments in subsidiaries/associates/joint ventures.
Measurement principles applied
IAS 27 restricts measurement of qualifying investments to a short, closed list of options – deliberately narrower than the general measurement flexibility seen elsewhere in IFRS.
Framework basisUsed by IAS 27 for…
Historical costInvestments in subsidiaries, joint ventures, and associates – Option 1
Fair value (IFRS 9)Same investments – Option 2
Equity method (IAS 28 mechanics)Same investments – Option 3, added by a 2014 amendment
Qualitative characteristics in action: restricting the choice to just three options (rather than an open-ended policy choice) balances relevance for preparers who genuinely have different information needs, against comparability for users comparing separate financial statements across entities.
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Scope & Applicability
What IAS 27 covers
IAS 27 prescribes the accounting and disclosure requirements for investments in subsidiaries, joint ventures, and associates when an entity PREPARES separate financial statements – it does not mandate WHO must prepare them; that is determined by local regulation or a voluntary election.
WHAT IAS 27 DOES NOT COVER
How to prepare CONSOLIDATED financial statements → IFRS 10 Accounting for investments in associates and joint ventures using the equity method WITHIN consolidated statements → IAS 28 Determining whether an investee is a subsidiary, associate, or joint venture in the first place → IFRS 10 / IFRS 11 / IAS 28
IAS 27 is genuinely narrow in scope – it is the ONLY question of "how does the PARENT (the single legal entity) measure its investment in the group companies in its OWN standalone accounts?"
Key definitions you must know
Separate financial statements
Those presented by a parent (an investor with control of a subsidiary), or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost, in accordance with IFRS 9, or using the equity method.
Consolidated financial statements
The financial statements of a group in which the assets, liabilities, equity, income, expenses, and cash flows of the parent and its subsidiaries are presented as those of a single economic entity – governed by IFRS 10, not IAS 27.
Cost method
Historical cost, less accumulated impairment losses – investment income is recognised only to the extent the investor receives distributions from ACCUMULATED PROFITS of the investee arising AFTER the acquisition date.
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When Separate Financial Statements Are Prepared
Voluntary or mandated by local law – never a substitute for consolidation
Separate financial statements are prepared IN ADDITION TO consolidated financial statements (when consolidation is required), or in addition to financial statements in which investments in associates/joint ventures are accounted for using the equity method under IAS 28 – separate financial statements are NEVER a substitute for these when they are otherwise required.
A parent with no subsidiaries, associates, or joint ventures does NOT prepare "separate financial statements" in the IAS 27 sense – its ordinary financial statements ARE simply its financial statements, not a special "separate" category, since there is nothing to consolidate or equity-account in the first place.
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Measurement of Investments – The Three Permitted Options
The three options
At cost – historical cost, less any accumulated impairment In accordance with IFRS 9 – fair value through profit or loss, or (for equity investments) an irrevocable FVOCI election Using the equity method as described in IAS 28 – a 2014 amendment reintroduced this as a permitted option
The SAME method must be applied for EACH CATEGORY of investment (subsidiaries, joint ventures, associates), though DIFFERENT methods MAY be used for different categories – a genuine, deliberate flexibility within the standard.
Worked example – cost method with dividend
Example 1: Investment at cost, dividend received
A parent acquires 100% of a subsidiary for $5,000,000 cash, recording the investment at cost in its separate financial statements. In the following year, the subsidiary declares and pays a dividend of $300,000 to the parent, out of profits earned AFTER the acquisition date.
Investment carrying amount = $5,000,000 (unchanged – the cost method does not adjust for the investee's post-acquisition performance)
Dividend received = recognised as INCOME in the parent's SEPARATE SOPL, since it derives from post-acquisition profits
Dividend received = recognised as INCOME in the parent's SEPARATE SOPL, since it derives from post-acquisition profits
Dr
Cash $300,000
SOFP
Cr
Dividend income $300,000
SOPL
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Dividend Recognition & the Impairment Indicator Test
When a dividend signals a possible impairment – worked example
An investor recognises a dividend from a subsidiary, joint venture, or associate in profit or loss in its separate financial statements when its right to receive the dividend is established. HOWEVER, when the dividend received/receivable EXCEEDS the total comprehensive income of the subsidiary/JV/associate in the period the dividend is declared, this is an INDICATOR that the investment may be impaired, requiring an IAS 36 impairment assessment.
Example 2: Dividend exceeding total comprehensive income
A subsidiary declares a dividend of $800,000 to its parent. The subsidiary's total comprehensive income for the SAME period was only $500,000 (the dividend was partly funded from prior years' retained profits or a capital distribution).
The $800,000 dividend EXCEEDS the $500,000 total comprehensive income – this is a specific INDICATOR of impairment under IAS 36, requiring the parent to test the carrying amount of its investment in the subsidiary for impairment, since it may signal the subsidiary is depleting its net assets to fund the payout.
This "dividend exceeds TCI" trigger is a specific, exam-favourite technical rule – it doesn't automatically mean impairment EXISTS, only that an impairment ASSESSMENT is required.
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Group Reorganisations – The Cost of a New Parent's Investment
Establishing a new parent above an existing group
When a NEW parent is established above an existing group (e.g. for reorganisation purposes), and the new parent obtains control of the original parent by issuing equity instruments in exchange for existing equity instruments, with ownership interests before/after being identical, and the reorganisation has no substance – the new parent measures the cost of its investment in the original parent, in its OWN separate financial statements, at the CARRYING AMOUNT of its share of the equity items shown in the original parent's separate financial statements at the date of reorganisation, NOT at fair value.
This is a narrow but specific relief that avoids artificially inflating the carrying amount of an investment purely as a result of an internal restructuring with no genuine economic substance.
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Changes in Measurement Method
Treated as a change in accounting policy under IAS 8
If an entity changes its measurement approach FROM the cost method TO EITHER the fair value method or the equity method (or vice versa), this is applied as a change in accounting policy in accordance with IAS 8 – meaning RETROSPECTIVE application, restating comparative periods as if the new method had always been used.
This links IAS 27 directly to IAS 8's general policy-change machinery – one of the clearer, more testable cross-references in this standard.
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Separate vs Consolidated vs Individual – Terminology Clarified
Three distinct terms that are frequently confused
TermMeaning
Consolidated financial statementsThe GROUP's statements – parent and subsidiaries presented as a single economic entity (IFRS 10)
Separate financial statementsThe PARENT's OWN statements, presented ALONGSIDE consolidated statements, where investments are measured per IAS 27 (cost, IFRS 9, or equity method)
Individual financial statementsThe financial statements of an entity that has NO subsidiaries, associates, or joint ventures at all – simply its own ordinary financial statements, with no IAS 27 election to make
Only a parent (or an investor with joint control/significant influence) genuinely prepares "separate" financial statements in the technical IAS 27 sense – the term is a specific label, not a generic synonym for "unconsolidated."
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Disclosure Requirements
Required disclosures
GENERAL DISCLOSURES
The fact that the statements are separate financial statements, and the reason they are prepared (if not required by law) A list of significant investments in subsidiaries, joint ventures, and associates, including name, principal place of business, proportion of ownership interest, and proportion of voting rights (if different) A description of the method used to account for these investments
CROSS-REFERENCE DISCLOSURE
Identification of the consolidated financial statements (or those prepared applying IAS 28's equity method) to which the separate financial statements relate
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Critical Judgments & Estimates
Where management judgement matters most
SIGNIFICANT JUDGEMENTS
Which of the three permitted measurement methods to elect for each category of investment, and whether to apply different methods across categories Whether a group reorganisation genuinely lacks economic substance, qualifying for the carrying-amount relief in Section 6
SIGNIFICANT ESTIMATES
Whether an impairment indicator (e.g. dividend exceeding total comprehensive income) genuinely signals impairment requiring an IAS 36 write-down Fair value of investments where the FVTPL/FVOCI option under IFRS 9 is elected
Since IAS 27 applies only where an entity ALSO prepares consolidated (or IAS 28 equity-method) statements, the standalone "separate" figures should never be read by users as a complete picture of the group's financial position – they specifically represent the parent LEGAL ENTITY in isolation.
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IFRS vs US GAAP – Key Differences
Comparison – IAS 27 vs US GAAP
FeatureIFRS (IAS 27)US GAAP
Concept of "separate financial statements"Explicitly defined and governed by a dedicated standardNo direct equivalent standalone standard – "parent-only" financial statements are less commonly presented and not separately codified in the same way
Permitted measurement methodsCost, IFRS 9 fair value, or equity method – three explicit optionsWhere parent-only statements ARE prepared (e.g. for regulatory purposes), the equity method is typically required rather than offered as a choice among three methods
Consolidated statements as the primary/required statementsRequired alongside separate statements when control exists (IFRS 10)Consolidated statements are similarly the primary required statements under US GAAP consolidation guidance (ASC 810)
IAS 27's very existence as a standalone standard reflects a distinctly IFRS practice – many jurisdictions applying IFRS require or permit parent-only separate financial statements alongside consolidated ones (often for statutory, dividend-capacity, or tax purposes), a practice less codified under US GAAP.
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Statement Mapping – Where Every IAS 27 Event Lands
Comprehensive event-to-statement mapping table (in the parent's separate financial statements)
Event / transactionStatement(s) affectedNotes
Initial investment in a subsidiary/JV/associateSOFPRecognised per the elected method (cost, IFRS 9, or equity method)
Dividend received (cost or FVTPL method)SOPLRecognised as income when the right to receive is established
Dividend received exceeding investee's TCISOPL + trigger IAS 36 test
Fair value movement (IFRS 9 FVTPL option)SOPL SOFPRecognised through profit or loss each period
Fair value movement (IFRS 9 FVOCI election)OCI SOFPNever recycled to SOPL, per the irrevocable FVOCI election rules
Equity method share of profit/loss (equity method option)SOPL SOFPInvestment carrying amount adjusted for the investor's share, per IAS 28 mechanics
Impairment of the investmentSOPL SOFPPer IAS 36, applied to the SEPARATE financial statement carrying amount
Change in measurement methodEquity SOFPRetrospective restatement per IAS 8
Group reorganisation – new parent's cost of investmentSOFPMeasured at carrying amount of the original parent's equity, not fair value, where no substance exists
List of significant investments, methods used, cross-reference to consolidated statementsNotesMandatory disclosure
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Related Standards – Cross-Reference Map
How IAS 27 connects across the IFRS body of literature
StandardNature of the connection
IFRS 10Governs consolidated financial statements themselves; IAS 27's separate statements are ALWAYS presented alongside, never instead of, IFRS 10 consolidation when control exists
IAS 28Supplies the equity method mechanics used both in consolidated statements AND as one of the three permitted options in a parent's own separate statements
IFRS 9Supplies the fair value measurement option (FVTPL or irrevocable FVOCI) available for investments in a parent's separate financial statements
IAS 36Governs impairment testing of investments carried at cost or under the equity method in separate financial statements, triggered by indicators such as dividends exceeding total comprehensive income
IAS 8Governs the retrospective treatment required when an entity changes its measurement method for investments between the three IAS 27 options
IFRS 3Governs the acquisition accounting used to determine the ORIGINAL cost of an investment in a subsidiary recognised in the parent's separate financial statements
IAS 24Subsidiaries, joint ventures, and associates accounted for under IAS 27 are related parties, requiring disclosure of transactions and balances between them and the reporting entity
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Quick-Reference Glossary
Subsidiary
An entity controlled by another entity (the parent), per the control definition in IFRS 10.
Associate
An entity over which the investor has significant influence, per IAS 28.
Joint venture
A joint arrangement whereby the parties with joint control have rights to the net assets of the arrangement, per IFRS 11.
Equity method
A method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the investor's post-acquisition share of the investee's profit/loss and OCI.
Group
A parent and all its subsidiaries, per IFRS 10 – the reporting scope of consolidated financial statements, distinct from the parent-only scope of separate financial statements.
Total comprehensive income
Profit or loss plus other comprehensive income for a period – the benchmark used in the dividend-exceeds-TCI impairment indicator test.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Sep-1987
Exposure Draft E30 Consolidated Financial Statements and Accounting for Investments in Subsidiaries
Apr-1989
IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries
01-Jan-1990
Effective date of IAS 27 (1989)
1994
IAS 27 was reformatted
Dec-1998
IAS 27 was amended by IAS 39 Financial Instruments: Recognition and Measurement effective 1 January 2001
18-Dec-2003
Revised version of IAS 27 issued by the IASB
01-Jan-2005
Effective date of IAS 27 (2003)
25-Jun-2005
Exposure Draft of Proposed Amendments to IFRS 3 and IAS 27
10-Jan-2008
Revised IAS 27 (2008) issued
22-May-2008
IAS 27 amended for Cost of a Subsidiary in the Separate Financial Statements of a Parent on First-time Adoption of IFRSs
22-May-2008
IAS 27 amended for Annual Improvements to IFRSs 2007 relating to measurement of investments held for sale under IFRS 5 in separate financial statements
01-Jan-2009
Effective date of the two May 2008 amendments
01-Jul-2009
Effective date of IAS 27 (2008). Deloitte has published a Special Edition of our IAS Plus Newsletter dealing with the January 2008 revisions to IFRS 3 and IAS 27 (PDF 123k).
06-May-2010
IAS 27 amended for Annual Improvements to IFRSs 2010
01-Jul-2010
Effective date of May 2010 amendment to IAS 27
12-May-2011
IAS 27 (2008) is superseded by IAS 27 Separate Financial Statements (2011) and IFRS 10 Consolidated Financial Statements effective 1 January 2013