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IFRS for consolidated accounts could raise issues for shipping

SHIPPING COMPANIES and their financiers could be affected by the introduction of the new IFRS for consolidated financial statements, according to accountancy firm Moore Stephens.

The new standard, IFRS 10, which deals with consolidated accounts, comes into force in 2014 in the EU and adopts a new approach to the definition of a parent in consolidated accounts.

It identified three key element of control relating to a subsidiary: who has the power to direct the key activities; who gets a variable return as a result of the activities; and is there a connection between the exercise of power and the variable return.

Though many shipping groups will find the new standard has minimal, in the case of more complex arrangements there could be questions over the shipping company’s subsidiary status.

Michael Simms, partner at Moore Stephens, said: “In every case, IFRS 10 looks to the substance of the arrangement and not just to its legal form. So there is no simple answer to the three key questions it poses. Each situation needs to be assessed individually.

“There have been a number of cases in recent years of shipping companies being unable to meet their debt obligations. If the vessels operated by such companies are then sold, no accounting issues arise and the bank has simply realised its loss. In some cases, though, the bank does not wish to sell the vessel and it is transferred to a new entity in which the bank retains some form of interest.

“The question is whether, in such cases, that entity is a subsidiary of the bank. The new IFRS10 definition is already raising issues and more are likely to arise with the forthcoming implementation in the EU.”

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