IAS 27 Is Not the Consolidation Standard: What Separate Financial Statements Actually Means

If you learned group accounting before 2013, or from a textbook that did, IAS 27 is filed in your head as the consolidation standard. It is not, and the standard says so in one sentence.

Paragraph 20: this Standard is issued concurrently with IFRS 10, and together the two supersede IAS 27 Consolidated and Separate Financial Statements as amended in 2008.

That is the whole explanation. The pre-2011 IAS 27 really was the consolidation standard. When it was split, the consolidation half became IFRS 10 and the separate financial statements half stayed behind under the old number and a new title: IAS 27 Separate Financial Statements. The misconception is entirely understandable and entirely wrong.

What it actually governs

Paragraph 1 sets the purpose: to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. Paragraph 2 applies it when an entity elects, or is required by local regulations, to present them.

And like IAS 34, it mandates nobody. Paragraph 3: this Standard does not mandate which entities produce separate financial statements; it applies when an entity prepares separate financial statements that comply with IFRS.

Then the boundary rule that almost nobody knows. Paragraph 7 provides that the financial statements of an entity that does not have a subsidiary, associate or joint venturer interest in a joint venture are not separate financial statements.

So a standalone company accounts are simply its financial statements. IAS 27 has nothing to say about them. The term separate financial statements is not a synonym for individual company accounts; it describes the accounts of an entity that has one of those three relationships and is presenting its own position alongside, or instead of, consolidated figures.

Paragraph 6 confirms separate financial statements are those presented in addition to consolidated financial statements, with paragraph 8 allowing an entity exempt from consolidation under IFRS 10.4(a), or from the equity method under IAS 28.17, to present them as its only financial statements, and paragraph 8A requiring exactly that of an investment entity applying the IFRS 10.31 exception for all its subsidiaries.

Three measurement options, set per category

Paragraph 10 requires an entity preparing separate financial statements to account for investments in subsidiaries, joint ventures and associates either at cost, in accordance with IFRS 9, or using the equity method as described in IAS 28.

Three points get mangled.

First, the sentence that follows is a constraint rather than a freedom: the entity shall apply the same accounting for each category of investments. The policy is set per category — subsidiaries, joint ventures, associates — so cost for subsidiaries alongside the equity method for associates is permitted, while cost for one subsidiary and fair value for another is not.

Second, the equity method option was not originally there. It was added by Equity Method in Separate Financial Statements, issued in August 2014 and effective retrospectively for annual periods beginning on or after 1 January 2016. Older materials show two options, not three.

Third, the options do not behave identically on a disposal route. Investments accounted for at cost or using the equity method are accounted for under IFRS 5 when classified as held for sale or for distribution; the measurement of investments accounted for under IFRS 9 is not changed in those circumstances.

Two provisions override the choice. Under paragraph 11, an entity electing the IAS 28 fair value option for associates or joint ventures must also account for those investments the same way in its separate financial statements. Under paragraph 11A, a parent required by IFRS 10.31 to measure a subsidiary at fair value through profit or loss must do the same in its separate financial statements. Paragraph 11B then deals with changes of investment entity status, treating the date of the change as the deemed acquisition date.

The dividend rule, and the trap inside it

Paragraph 12 does two separate jobs in one sentence. Dividends from a subsidiary, joint venture or associate are recognised in separate financial statements when the entity right to receive the dividend is established; and the dividend is recognised in profit or loss unless the entity elects to use the equity method, in which case it is recognised as a reduction from the carrying amount of the investment.

The timing point is that recognition follows the establishment of the right to receive — not declaration, not payment, and certainly not the point at which the investee earns the profit. The classification point is that the dividend is income under cost and under IFRS 9, and a reduction of the investment under the equity method.

The trap is the asymmetry under the cost model. Dividends go to profit or loss regardless of whether they are paid out of pre- or post-acquisition profits. So a newly acquired subsidiary paying a large dividend out of pre-acquisition reserves generates income in the parent separate profit or loss at the same moment as the recoverable amount of the investment falls. That is a genuine practitioner trap, and it is why the interaction with IAS 36 matters in separate financial statements rather than only in the consolidated accounts.

One set of facts, three permitted answers

Parent P acquires 100 per cent of S on 1 January 20X1 for 1,000 in cash. S makes a profit of 200 for the year and pays a dividend of 120 on 1 December 20X1, at which date P right to receive is established. The fair value of the investment at 31 December 20X1, after the dividend, is 1,150. There are no impairment indicators.

At cost, the carrying amount stays at 1,000 and profit or loss carries dividend income of 120. None of S profit is recognised.

Under IFRS 9 at fair value through profit or loss, the carrying amount is 1,150, and profit or loss carries the dividend income of 120 plus a fair value gain of 150, so 270 in total.

Under the equity method, the carrying amount is 1,000 plus the 200 share of profit less the 120 dividend, so 1,080, and profit or loss carries the share of profit of 200. The dividend does not appear in profit or loss at all.

Three permitted answers on identical facts: carrying amounts of 1,000, 1,150 and 1,080, and profit of 120, 270 and 200. A spread of 150 on both the balance sheet and the income statement, from an accounting policy choice. For a UK group that matters beyond presentation, because the separate financial statements are where distributable profits are determined.

Disclosure, and what is coming

Paragraph 16 applies where a parent uses the IFRS 10.4(a) consolidation exemption: state that the statements are separate financial statements and that the exemption has been used; identify the entity whose IFRS consolidated statements have been produced for public use and where they can be obtained; list significant investments in subsidiaries, joint ventures and associates with ownership and voting proportions; and describe the method used to account for them.

Paragraph 17 covers everyone else preparing separate financial statements: identify the consolidated or equity-accounted statements to which they relate, state that they are separate financial statements, give the reasons for preparing them if not required by law, and provide the same list and method description.

IAS 27 has no amendments of its own effective in 2025, 2026 or 2027. What is coming is indirect: the IASB equity method project concluded technical deliberations in September 2026, with a revised IAS 28 expected in the first half of 2027 and an effective date of 1 January 2029, and it makes changes to IAS 27 disclosures. Separately, the Amendments to the Fair Value Option for Investments in Associates and Joint Ventures, issued 26 June 2026 and effective 1 January 2027, clarify who qualifies for the IAS 28 exemption that paragraph 11 points at — and those were not yet UK-adopted as at 30 September 2026, so check endorsement before relying on them.

The FRS 102 divergence

This is where a UK practitioner can actually trip. FRS 102 does not offer the equity method in the individual financial statements of a non-parent investor. The election there runs between cost less impairment, fair value through other comprehensive income, and fair value through profit or loss — three options, but not the same three.

Dividend recognition is also the one place the periodic review did real work on this topic: dividend income recognition requirements were added to both Section 11 and Section 12, effective for periods beginning on or after 1 January 2026. Elsewhere on separate and consolidated reporting the honest answer to what changed is very little. Our guides to the FRS 102 periodic review and to IFRS 11 joint arrangements cover the surrounding picture.