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Hello Kim,
ISA 600 mentions, as an example only, that if a component contributes more than 15% to a group balance then that component might be considered as significant.
If the Group holds 80% shares in one subsidiary and 30% shares in one associate, and the Group assets is $1000 million (assumed there are multiple subsidiaries and associates within the Group).
If the total assets based on draft individual financial statements of the SUBSIDIARY is $160 million, then to determine whether this is a significant component, the calculation would be 160/1000 = 16% OR (0.8*160)/1000 = 12.8%? Please advise which calculation is correct.
If the total assets based on draft individual financial statements of the ASSOCIATE is $400 million, then to determine whether this is a significant component, the calculation would be 400/1000 = 40% OR (0.3*400)/1000 = 12%? Please advise which calculation is correct.
Thank you.
Regards,
MarthewSince 100% of a subsidiary is consolidated the actual % shareholding is irrelevant when assessing the materiality of a line item in the subsidiary’s financial statement (i.e. the amount that will be consolidated). So in your example I would say 16%.
However, since an associate is NOT consolidated, only the 30% investment is relevant when assessing materiality from the group’s perspective. So in your example 12%.
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