Capital consolidation – full consolidation of foreign currency companies

How do you correctly consolidate subsidiaries preparing financial statements in foreign currency into the IFRS consolidated financial statements? This white paper provides a practical guide to full consolidation in accordance with IFRS 3, as well as currency conversion in accordance with IAS 21. You will learn how the revalued equity is determined, what valuation options exist for non-controlling interests and how differences affect the consolidated financial statements. We also explain the concept of the functional currency, the modified current rate method, how to record exchange rate differences in other comprehensive income (OCI) without unduly affecting the balance sheet, and the special characteristics of deferred taxes. A detailed example using figures shows all the steps from initial to subsequent financial consolidation — including handling hidden reserves, an impairment only approach, and the illustration of non-controlling interests. Ideal for CFOs, group accounting managers, and auditors who want to ensure consistency, transparency, and compliance in accounting consolidation.

Contents

1. Capital consolidation according to IFRS 3
   1. Revalued equity as the basis for full consolidation
   2. Valuation of non-controlling interests
   3. Differences arising from capital financial consolidation
2. Currency conversion in accordance with IAS 21
   1. The concept of functional currency 
   2. Conversion of financial statements of independent subsidiaries using the modified current rate method
   3. Conversion of financial statements of dependent subsidiaries using the temporal method
   4. Deferred taxes on conversion differences
3. Conclusion and brief comparison with the German GAAP