Question

FRS 110 paragraph 22 requires non-controlling interest in the consolidated statement of financial position to be presented within equity, separately from the owners of the parent. The now-superseded FRS 27 (2003) required minority interest to be presented separately from liabilities and parent shareholders’ equity.

Discuss the implications of the change in the requirement of the accounting standard.

Answer 1

As per IFRS, Minority Interest is shown under the Equity section of the consolidated balance sheet, whereas US GAAP offers much flexibility for reporting. Under US GAAP, it can be reported under the liabilities or equity section.

Checkout the difference between IFRS vs. US GAAP

The reason for separate line items with respect to such interest is to give a clear picture to the users of financial statements about the various controlling interest in the company. It helps them in making informed economic decisions and also helps them in making comparisons on the shareholding patterns of different companies. It plays a huge role in analyzing various investment opportunities and calls for its consideration while computing various ratios and analyzing financial statements.

One other reason for separate disclosure is to provide certain protection to minority shareholders as they are in a position of disadvantage. Since they are hardly involved in the decision-making process, there is a need to protect them oppression and mismanagement of conduct of the company’s affairs by management