NUST Business School

ACC-344 Corporate Reporting

Assignment 1

Submitted to;
Sir Umair Ashraf

Submitted by;
Asadullah Sher

BS ACF 2K16 A

Date: 24 September, 2018.

 Comparison of IFRS/IAS and The Company Act 2017

Financial Statements:
IFRS
IFRS’s apply only to financial statements, and not necessarily to other information presented in an
annual report. IAS 1 defines financial statements as “those intended to meet the needs of users who
are not in a position to require an entity to prepare reports tailored to their information needs”.
Complete set of financial statements is same as of Company Act but also emphasizes our attention
on “statement of financial position as at the beginning of the preceding period when an entity
applies an accounting policy retrospectively”. IFRS completely describes the presentation and the
basis for preparing financial statements.
The Company Act 2017
The Company Act 2017 regulates the complete annual report which include all financial statements
along with director report and audit report. There is no such proper definition of financial
statements in this act. Complete set of financial statements include statement of financial position,
profit or loss and other comprehensive income, statement of cash flows, notes to financial
statements, comparative information in respect of preceding period and any other statement as
prescribed. The company act only provides an overview of the regulation of financial statements.

Control:
IFRS
According to IFRS 10, an entity shall determine whether it is parent company by assessing whether
it controls the investee. An investor controls an investee when it is exposed, or has rights to variable
returns from its involvement with the investee and has ability to affect those returns through its
power over the investee. IFRS also describes the loss of control i.e. when parent loses control over
subsidiary.
The Company Act 2017
Control is the beneficial ownership of securities and the power to exercise a controlling influence
over the voting power attached to. (Section 7, d) Control can be held by substantial shareholder by
himself/herself, or by spouse of shareholder, son or daughter. There is no such proper section
regarding “loss of control”.
Parent Company:
IFRS
IFRS: 10 Consolidated Financial Statements deals with the term “Parent Company”. Parent
company is an entity which controls other entities. IFRS also defines the concept of investment
entity and sets out an exception to consolidating particular subsidiaries of an investment entity.
The Company Act 2017
In this act, the term parent is used as holding company. Holding company is a company which
holds the company, but only if the other company is its subsidiary or associate. The concept of
investment entity is not explained. The company act emphasize that financial year of a parent
company and its subsidiary, unless there is a good reason, should be the same.

Associate Company:
IFRS
Associate is defined as an entity in on which an investor has a significant influence, but not control
or joint control. Associate is identified when, an investor has significant influence on other entity
i.e. having more than 20% shares of other company. IFRS also describes the method of accounting
to be used for associates i.e. Equity Accounting. Under the equity method of accounting, an equity
investment is initially recorded at cost and is subsequently adjusted to reflect the investor's share
of the net profit or loss of the associate. IFRS mainly focuses on the accounting treatment of
Company and their associates.
The Company Act 2017
The Company Act 2017 describes associates as the one company should hold more than 20% of
voting power in other company, and the management should be under common control, and a
person who is the owner of a company should hold not less than 20% shares in another company.
According to the act, that person will also be considered as associated person. In this Act, there is
no such explanation of accounting treatment to be done for company and its associates.

Subsidiary:
IFRS/IAS
IFRS 10 defines subsidiary as an entity that is controlled by another entity. According to the IFRS,
investee can control investee if it has all the following
  Power over the investee
 Exposure or rights to variable returns
 the ability to use its power over the investee to affect the amount of the investor’s returns
The Company Act 2017
It defines subsidiaries more clearly, according to the act subsidiary is defined as “means a company
in which the holding company
(a) Controls the composition of the board; or
(b) Exercises or controls more than one-half of its voting securities either by itself or together with
one or more of its subsidiary companies”.

Share:
IFRS/IAS
Share is actually one of the equal part in which company’s capital is divided. There is no definition
for shares in IFRS. However, there are two IFRS that deals with shares IFRS 2: Share Based
payments & IAS 32: Financial Instruments.
The Company Act 2017
Share is defined as “share in the share capital of a company”. According to the act, every share in
a company having a share capital shall be distinguished by its distinctive number. The shares or
other securities of any member in a company shall be movable property transferable in the manner
provided by the articles of the company. Company act 2017 deals more with the types and nature
of shares rather than their accounting treatments.

Non-Controlling Interest & Controlling Interest

A controlling interest is defined as having more than 50% voting rights & shares in the company.
A non-controlling interest also known as minority interest is the portion of subsidiary stock that is
not owned by the parent company.
IFRS/IAS
IFRS 10 sets out the guidance for the accounting for non-controlling interests in consolidated
financial statements. According to IAS, a parent shall present non-controlling interests in the
consolidated statement of financial position within equity, separately from the equity of the owners
of the parent. While Controlling interest shall be presented but not separately from the equity of
parents and any change in a parents ownership interest in a subsidiary that do not result in the
parent losing control of subsidiary are equity transactions.
The Company Act 2017
No section or material could be found regarding ownership interest and minority interests in this
Act.

Consolidated Financial Statements:

IFRS
IFRS 10: Consolidated Financial Statements establishes principles for the presentation and
preparation of consolidated financial statements when an entity controls one or more other entities.
It is defined as “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. They are prepared using uniform accounting policies for like transactions and
other events in similar circumstances. IFRS 10 also describes some conditions in which a parent
company does not have to prepare consolidated financial statements. i.e.
 if it is a wholly owned subsidiary
 its debt or equity instruments are not traded in a public market
 It did not file or not in a process of filing, its financial statements with a securities and
exchange commission.
The Company Act 2017
As IFRS tell us about the importance and the scope of consolidated financial statements, The
Company Act 2017 elaborates this more clearly by explaining many aspects of consolidated
financial statements including their audit, financial years and authorization etc.
According to The Company Act 2017, Section 228 (1) There shall be attached to the financial
statements of a holding company having a subsidiary or subsidiaries, at the end of the financial
year at which the holding company‘s financial statements are made out, consolidated financial
statements of the group presented as those of a single enterprise and such consolidated financial
statements shall comply with the disclosure requirements of the relevant Schedule and financial
reporting standards notified by the Commission.
Every auditor is entitled to audit consolidated financial statements and report on them, another
important aspect which is discussed in this Act is that if the financial year of a subsidiary precedes
the day on which the holding company‘s financial year ends by more than ninety days, such
subsidiary shall make an interim closing, on the day on which the holding company‘s financial
year ends, and prepare financial statements for consolidation purposes and every consolidated
financial statement shall be signed by the same persons by whom the individual financial
statements of the holding company are required to be signed.

Dividends:
IFRS
IAS 1 Presentation of Financial Statements requires the following in respect of dividends:
 Amount of dividends recognized (in total and per share) to be disclosed in the statement of
changes in equity or in the notes
 Dividends declared after the end of the reporting period but before the authorization of
financial statements not recognized as dividends during the period to be disclosed in the
notes
IFRS deals with payment and receipts of dividends and their treatments in the books of
accounts.
The Company Act 2017
There are different sections on Dividends and their payment thereof in company act 2017.
Dividends should be declared in general meetings, but should not exceed the amount
recommended by the board. Dividend is only paid out of its profits and only to registered
shareholders.
Company Act deals with the laws and regulation of dividends or any other term discussed above
that every company registered under this act will have to follow otherwise can be subjected to
different penalties while IFRS is more focused towards the recognition and treatment of their
payments in accounts of the company.

Goodwill
IFRS
According to IFRS 3, Goodwill is measured as the difference between (value of consideration, the
amount of any non-controlling interest, the acquisition date fair value of the acquirer previously
held equity interest) and the net fair value of all identifiable assets acquired and liabilities assumed.
IFRS 3 describes two methods for measurement of non-controlling interest i.e.
 Fair value
 The NCI’s proportionate share of net assets of acquire
The Company Act 2017
The Company Act only describes the registration of mortgages and charges on goodwill or any
other intellectual property. As compared to IFRS, it does not provide any information about the
measurement and accounting treatment of goodwill in books of the company.