Introduction

Question 1

What is acqusition?

Answer 1

Question 2

What different form of acqusitions there is? (3)

Answer 2

Subsidiaries, Joint ventures, Associates.

Question 3

Subsidiaries

Answer 3

• An entity whose business and financial policies can be determined by another entity (i.e. the parent).
• Management control is assumed when:
• parent holds more than 50% of voting rights; or
• control through contractual agreements; or
• having otherwise the power to govern the operating and financial
  policies.
• It is irrelevant whether control is actually exercised (“control
  principle”).

Question 4

Joint ventures

Answer 4

*Business is jointly controlled by more than one entity (e.g. 50% / 50%).
*Decisions about the relevant activities require the unanimous consent of the parties sharing control

Question 5

Associates

Answer 5

• Parent takes a significant stake in another entity.
• Typically includes a voting share of at least 20% but less than 50%.
• Significant influence on the business is probable.

Question 6

Narrow definition

Answer 6

• Scope of consolidated financial statement extends only to entities it comprises, i.e. the parent and all entities under parent’s control (subsidiaries).

Question 7

Broad Definition

Answer 7

• Scope of consolidated financial statement includes joint ventures and associates as well as subsidiaries.

Question 8

Difference between single entity FS and Consolidated FS

Answer 8

Financial Statements GF Ltd
▪ Financial statements of a legal entity
▪ Based on Swiss Law (Swiss CO)
▪ Relevant for assessment of taxes
▪ Presentation of the activities of solely one company

Consolidated financial statements:
▪ Financial statements of an economic entity
▪ True and fair view (according to Swiss GAAP FER)
▪ No taxation based on consolidated net profit (in Switzerland)
▪ Basis for share price valuation
▪ Presentation of the operating activities of the group
▪ Credit rating (banks)

Question 9

what is the purpose of Consolidation?

Answer 9

Purpose of consolidation:
▪ Look at the group as a whole to assess the true financial situation
▪ Separate financial statements lose all significance from a group
perspective
▪ The consolidated financial statement pretends to represent the group
entities as if they were one single entity
▪ Intercompany relations must be eliminated
▪ Only the relations to third parties are relevant

Question 10

Statement of Consolidated FS

Answer 10

The consolidated financial statement proceeds from the fiction that a group comprising a combination of entities should be viewed as one single entity

Question 11

Principle of Uniformity

Answer 11

▪ The consolidated financial statement proceeds from the fiction that a group comprising a combination of entities should be viewed as one single entity

▪ The separate financial statements of the group’s entities (statutory accounts, “SA”) must be aligned both in terms of their form and their content to ensure that the reporting package (“RP”) is prepared in line with Group guidelines and rules

▪ This means:
− uniform account allocation and structuring (chart of account)
− uniform measurement
− uniform balance sheet closing / reporting date

Question 12

How is principle of Uniformity delivered?

Answer 12

▪ Groups ensure uniform structure and measurement by issuing a binding set of rules (“Group Accounting Manual”, “Group Finance Manual”, etc.) to all group companies for the preparation of their individual reporting packages

▪ In order to prepare consolidated financial statements, the individual statutory accounts (SA) of the separate entities that are shaped by national regulations have to be redesigned in accordance with group guidelines

Question 13

Key requirement for Principle of Uniformity?

Answer 13

▪ A key requirement for the preparation of the consolidated financial statement is that each item on the separate financial statements (e.g. securities, machines, provisions) must be measured according to uniform criteria

▪ This ensures that the content aggregated within the same accounts is consistent throughout the whole group

▪ Uniform group-wide approach (value, useful life etc.) must be established and enforced for all items in the context of preparing the reporting packages

▪ Valuation principles based on local rules applicable to the respective jurisdiction of the Group company must be adjusted if not in line with uniform Group valuation principles

Question 14

Closing Date

Answer 14

▪ A uniform group financial statement requires all integrated entities to prepare their financial statements on the same balance sheet closing date.

▪ If the balance sheet closing dates of the parent and a subsidiary vary, then depending on the extent of the time difference, the subsidiary must prepare a separate interim financial statement as per the parent’s balance sheet closing date.

▪ Generally, this applies when the variance exceeds three months or more.