Foundations of Group Financial Reporting
45 min read • Last updated January 2026
Let's talk about Group Financial Accounting… Daunting, right? From FCTRs to changes in degrees of influence to eliminating pro formas — where do you even begin? This part covers the essential foundations you need before diving into the mechanics.
1Know Your Starting Point
Before doing any consolidation work, ask yourself the fundamental question:
The Control Question
Am I acquiring a subsidiary or an associate?
Does the parent have control?
Consolidate (Subsidiary)
Apply IFRS 10 consolidation procedures
Equity Account (Associate)
Apply IAS 28 equity method
This decision is crucial because it determines the entire accounting approach. Get this wrong, and everything that follows will be incorrect.
2Master the Analysis of Equity (AOE)
Pro Tip
Work in the 100% column first, then multiply out to NCI or parent as needed. This reduces calculation errors significantly.
This is the heart of group accounting — your journals flow from here. Understanding the structure of an AOE is essential.
🔵 At Acquisition
- Eliminate the subsidiary's equity balances
- Process fair value adjustments on assets and liabilities
- Apply deferred tax
Tax Rates:
Note: 21.6% is the exact figure; many students use 21.3% from lecture material.
Assets usually recovered through sale include:
- • Land
- • Investment property (usually measured through fair value model)
🟡 Since Acquisition (Pre-current year)
Process all movements after acquisition:
- Depreciation/amortisation on FV adjustments
- Deferred tax movements
- Prior year profits
- Impairments if applicable
- Dividends declared/paid
🟢 Current Year
- Current-year profit
- Current-year effects of fair value adjustments
- Updated deferred tax
- Any FV adjustments on financial instruments or investment property
3Know Your Group Statements
Understanding where figures flow from in your AOE and journals is crucial. You should be comfortable drafting:
Primary Statements
- Group Statement of Financial Position
- Group Income Statement
- Group Statement of Changes in Equity
- Group Statement of Cash Flows
Key Calculations
- Group Profit After Tax (GPAT)
- Notes to the financial statements
- NCI calculations
- Goodwill reconciliation
Key Insight: If you know the source of every number, consolidation becomes logical and not intimidating. Always trace back to your AOE.
Key Takeaways
- Control = Consolidate: Always start by determining whether you have control (subsidiary) or significant influence (associate).
- AOE is king: The Analysis of Equity is the foundation of all group accounting journals.
- Work in 100%: Always calculate in the 100% column first, then allocate to NCI and parent.
- Know your tax rates: 27% normal rate, 21.6% for CGT assets.
Coming in Part 2...
We'll dive deep into IFRS 3: The Acquisition Method — covering how to identify the acquirer, determine the acquisition date, measure identifiable assets, calculate goodwill, and handle contingent consideration.