Group Disclosures, Management Commentary and IFRS in Group Scenarios

Group financial statements are not only a set of numbers.

A reader needs to know which companies are in the group, how much of the profit belongs to outside shareholders, whether a subsidiary has restrictions on paying dividends, what management thinks lies behind the results, and how the standards on events after the year end, foreign operations, tax and disposals apply when the entity is a group and not a single company.

This topic covers the disclosures about groups, the management commentary that accompanies the financial statements (including the revised International Financial Reporting Standards (IFRS) Practice Statement 1), and the application of the standards to simple group scenarios: deferred tax on fair value adjustments, a foreign subsidiary, events after the reporting period, and a disposal that loses control. The next topic starts the analysis of financial statements.

No question in the diets reviewed tests this topic as a stand-alone item, but its parts appear inside the group questions, for example the fair value and tax adjustments at acquisition and the effect of events after the year end on a subsidiary. Read the consolidated statement of cash flows of a simple group first.

Disclosures about groups

• Composition of the group. Each subsidiary, its place of business and the proportion of ownership and voting rights held by the parent and by the non-controlling interest. A reader cannot interpret the statements without knowing what is in them.
• Non-controlling interests. For each subsidiary with a material non-controlling interest: the share of profit allocated to the NCI, accumulated NCI in the statement of financial position, dividends paid to it, and summarised financial information about the subsidiary.
• Significant restrictions. Restrictions on the group’s ability to access or use assets and settle liabilities, for example a subsidiary that cannot pay a dividend because of a loan covenant or exchange controls. This links to the disclosure of cash held but not available to the group.
• Changes in ownership that do not lead to a loss of control, and the gain or loss on a loss of control.
• Associates and joint ventures. The nature of the relationship, the group’s share, summarised financial information, and the carrying amount of each material one.
• Related parties (International Accounting Standard (IAS) 24). The relationship between a parent and its subsidiaries must be disclosed whether or not there have been transactions, with the name of the parent and the ultimate controlling party, and the key management compensation. Transactions inside the group are eliminated from the consolidated statements and need not be disclosed there, but transactions with associates and with the parent’s key management are.
• Segments (IFRS 8). Entities with publicly traded instruments report operating segments, so the group’s performance can be broken into its main business or geographical components.

Management commentary

Management commentary is a narrative report that accompanies the financial statements. It gives users the management’s explanation of the entity’s financial position and performance, and the factors that may affect it in future. In June 2025 the International Accounting Standards Board (IASB) issued a revised IFRS Practice Statement 1 Management Commentary, which replaces the 2010 version for annual periods beginning on or after 23 June 2025, with earlier application permitted.

It is a non-binding framework: financial statements can comply with IFRS Accounting Standards without it, and it can be used alongside local law or regulation and the IFRS Sustainability Disclosure Standards. Its aim is connected, decision-useful information about the factors that affect the entity’s ability to create value and generate cash flows, including in the long term.

A good management commentary on a group covers:

• the business model and strategy: what the group does, how it earns its returns and its plans;
• the resources and relationships on which it depends, such as people, customers, suppliers, finance and natural resources;
• the risks and uncertainties and how they are managed;
• performance and position: revenue and profit by business, the effect of acquisitions, goodwill impairments, the contribution of associates and the share of profit that belongs to outside shareholders; cash flows, liquidity and going concern; and
• outlook: the factors that are likely to affect future results.

The information should be relevant, faithfully represent the facts (fair, balanced and not selective), and be connected to the financial statements, so that numbers quoted agree with them.

IFRS in simple group scenarios

• Deferred tax on consolidation adjustments (IAS 12). A fair value uplift at acquisition does not change the tax base of the asset, so a deferred tax liability arises on it and reduces the net assets acquired, which increases goodwill. A plant uplifted by ₦50 with tax at 30% creates a deferred tax liability of ₦15. Unrealised profit eliminated from inventory gives a deferred tax asset, since the tax is paid on the seller’s profit.
• A foreign subsidiary. (IAS 21). Its assets and liabilities, including the goodwill and fair value adjustments, are translated at the closing rate and its income and expenses at the rates at the dates of the transactions (or an average). The exchange differences go to other comprehensive income and the translation reserve, and the NCI takes its share.
  For example, net assets of 500 foreign currency units (FC) were bought when the rate was ₦1.20 and the closing rate is ₦1.50: the difference on net assets is FC 500 × ₦0.30 = ₦150, and on goodwill of FC 50 it is ₦15, a total of ₦165 in other comprehensive income.
• Events after the reporting period (IAS 10). An adjusting event that affects a subsidiary’s figures, such as the insolvency of one of its customers, is reflected in the subsidiary’s statements and so in the group. A non-adjusting event, such as the acquisition of another business after the year end, is disclosed.
• Disposal and held for sale (IFRS 5). If the group is committed to selling a subsidiary, all its assets and liabilities are classified as held for sale and presented separately; it may be a discontinued operation.
• Loss of control (IFRS 10). If the parent sells enough shares to lose control, it derecognises the subsidiary’s assets, liabilities, goodwill and NCI, recognises the proceeds, and remeasures any interest it keeps to fair value, with the gain or loss in profit or loss. The retained interest is then an associate or financial asset.
• Leases and other standards. The standards for leases, impairment, and financial instruments apply to the group as to a single entity, using uniform policies.

For example, a group sells part of its holding in a subsidiary, reducing its interest from 80% to 20%. It receives ₦900 million. The fair value of the retained 20% is ₦300m. In the group statement the subsidiary’s net assets are ₦1,000m, goodwill is ₦100m, and the non-controlling interest is ₦200m. The gain is ₦900m + ₦300m + ₦200m − (₦1,000m + ₦100m) = ₦300 million, and the retained 20% is carried at ₦300m as an associate.

The ideas in more depth

Why disclosure is part of consolidation

Consolidation combines assets and liabilities into single lines and so hides the structure. The disclosures put back what a user needs: where the profit is earned, who has a share in it, and what the group cannot freely use.

Why the retained interest is remeasured

When control is lost, the relationship changes in kind: the group had a subsidiary and now has an investment. Remeasuring to fair value treats it as though the subsidiary had been sold and a new investment bought, so the gain or loss is complete at that date.

Sources and references

• IFRS 12 Disclosure of Interests in Other Entities; IAS 24 Related Party Disclosures; IFRS 8 Operating Segments; IFRS Practice Statement 1 Management Commentary (revised, issued 23 June 2025); IAS 12, IAS 21, IAS 10, IFRS 5 and IFRS 10 for the scenarios.

These points are stated as at 5 November 2026.

Worked examples

1. Deferred tax liability.
   30% × ₦50m = ₦15m.
2. Net assets acquired.
   rise by ₦50m − ₦15m = ₦35m only, so goodwill is ₦15m higher than without deferred tax.

1. Net assets.
   FC 500 × (₦1.50 − ₦1.20) = ₦150.
2. Goodwill.
   FC 50 × ₦0.30 = ₦15.
   Total ₦165 in other comprehensive income.

1. Calculation.
   ₦900m + ₦300m + ₦200m − ₦1,100m = ₦300m.

How to answer in the exam

• For disclosure questions, group the points: composition, non-controlling interests, restrictions, associates, related parties, segments.
• For commentary, list the content (model, strategy, risks, performance, outlook) and the qualities (relevant, faithful, connected).
• For scenarios, name the standard, state the rule, and apply it to the figures.

Common mistakes in the exam

• Saying that management commentary is part of the audited financial statements.
• Forgetting the deferred tax on a fair value uplift.
• Translating a foreign subsidiary’s assets at the average rate.
• Taking exchange differences on translation to profit or loss.
• Not remeasuring the retained interest on loss of control.
• Disclosing intra-group transactions as related party transactions in the consolidated statements.

Quick revision

• Group disclosures: composition, NCI, restrictions, associates, related parties, segments.
• Management commentary: model, strategy, resources, risks, performance, outlook; revised Practice Statement 1 (June 2025) is non-binding.
• Fair value uplift: deferred tax raises goodwill. Foreign subsidiary: closing rate, differences in other comprehensive income. Loss of control: remeasure the retained interest to fair value.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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