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Plain‑English explainer of HKAS 27 / IAS 27 for students, junior accountants and non‑specialists who find official standards too dense to read.
This article is based on Hong Kong Accounting Standards (HKAS / HKFRS), which are fully aligned with IAS / IFRS except for minor local tweaks, so the same principles generally apply under IAS / IFRS unless noted otherwise. The goal is to unpack HKAS 27 Consolidated and Separate Financial Statements (equivalent to IAS 27) using plain English and practical, real‑life examples instead of technical jargon. It is written for students, junior accountants, audit juniors and finance professionals who want to understand not just “what the standard says” but how to actually read and prepare financial statements in line with it.
When you see “the company” or “the entity” below, you can think of any entity that prepares general purpose financial statements under HKFRS / IFRS.
What exactly does HKAS 27 cover?
In Hong Kong, most people look at the consolidated financial statements in annual reports . The actual separate financial statements of the parent company and subsidiaries often sit at the back and get ignored . Then one day during audit or restructuring work, someone asks: “Is this consolidated or separate? Should we use cost method, equity method, or HKFRS 9?” That’s when you realise you don’t have a solid grasp of what HKAS 27 actually governs .
This article addresses that gap: what does HKAS 27 regulate, and what doesn’t it cover ? When do you need to understand it ? How does it divide responsibilities with HKFRS 10, HKAS 28, HKFRS 9 and other standards ? If you work in accounting or audit and want to clarify the framework for separate financial statements, or if you’re preparing for professional exams, this will help you build a clear mental map .
What You Should Be Able To Do After Reading?
By the end, you should be able to:
- Explain in simple terms the historical background of HKAS 27 and its current role in dealing only with separate financial statements
- Distinguish between consolidated financial statements and separate financial statements, and know when a set of financial statements does not count as separate even though it’s not consolidated
- Understand the core principle of HKAS 27: how to choose and consistently apply accounting policies for investments in subsidiaries, joint ventures and associates in separate statements, and why this design matters
- Recognise the scope of HKAS 27: it doesn’t force you to prepare separate financial statements, but once you choose or are required to prepare them, you must follow HKAS 27 for those investments
- Roughly understand how HKAS 27 relates to HKFRS 10, HKFRS 11, HKAS 28, HKFRS 9, HKFRS 5 and HKFRS 12, laying the foundation for deeper study of each topic
1. The evolution and current role of HKAS 27
The early version of HKAS 27 was called “Consolidated and Separate Financial Statements,” covering both consolidation principles and accounting policies for separate financial statements . Back then, issues about control and consolidation scope were all bundled in this one standard .
With the introduction of the new control model, Hong Kong issued HKFRS 10 Consolidated Financial Statements (equivalent to IFRS 10), which deals specifically with the definition of control and consolidation principles . HKAS 27 was renamed “Separate Financial Statements” and now only retains the part about how to account for investments in subsidiaries, joint ventures and associates at the individual entity level . In other words, the world of consolidation is governed by HKFRS 10, while how those investments should be recorded in a single entity’s books is left to HKAS 27 .
One crucial concept for readers: HKAS 27 no longer tells you when or how to consolidate—that’s HKFRS 10’s job . HKAS 27 is concerned with how to measure and disclose investments in subsidiaries, joint ventures and associates once you prepare separate financial statements at an entity level.
2. Core principle in one sentence
If you had to summarise HKAS 27’s core principle in one sentence, it would be: when a company prepares separate financial statements, investments in subsidiaries, joint ventures and associates should be measured using cost method, HKFRS 9, or equity method, and the same accounting policy should be applied consistently to each category of investment .
Breaking this down reveals three elements .
Types of investments covered
HKAS 27 doesn’t deal with all investments—it focuses on three categories :
- Subsidiaries: defined by HKFRS 10 as entities under control
- Joint ventures: defined by HKFRS 11 as arrangements with joint control where parties share net assets
- Associates: defined by HKAS 28 as entities where the investor has significant influence but not control
The standard answers this question: when these investments appear as “investments” in a single entity’s separate financial statements, how should you measure and present them ?
Permitted accounting methods
HKAS 27 allows three measurement methods (depending on category and amendments) :
- Cost method
- HKFRS 9 measurement (such as fair value through profit or loss or other comprehensive income)
- Equity method—an option reopened after the 2014 amendments
Many Hong Kong companies tend to use cost method for investments in subsidiaries in separate statements because it’s simple . But the standard doesn’t mandate cost method—it gives you several routes, with the emphasis on the next point .
Consistency within each category
HKAS 27 emphasises that the same method must be used for the same category of investment . For example, all investments in subsidiaries use one method, all investments in associates use one method, and all investments in joint ventures likewise . This ensures comparability and prevents selective number-polishing . In practice, if you see a separate financial statement where some subsidiary investments are at cost and others at fair value, you should ask: is there a clear classification and policy explanation, or does this violate the consistency principle ?
3. Scope and when HKAS 27 applies
The scope of HKAS 27 can be summarised as follows: when an entity chooses or is required to prepare separate financial statements in compliance with HKFRSs, this standard applies .
Key points :
- The standard itself doesn’t force you to prepare separate statements
- Whether you need to prepare them is usually determined by company law, listing rules or regulatory requirements
- But once you prepare them and claim compliance with HKFRSs, investments in subsidiaries, joint ventures and associates must follow HKAS 27’s rules
Typical scenarios include :
- A parent company preparing both consolidated financial statements and separate parent company financial statements
- Some parent companies that qualify for exemptions under HKFRS 10 and only prepare separate financial statements without consolidation
- Subsidiaries themselves preparing their own financial statements and claiming compliance with HKFRSs
In audit or practice, you often get asked: “Is this consolidated? Separate? Individual?” It’s really asking: are we in HKFRS 10 territory or HKAS 27 territory ?
4. Key definitions: Consolidated vs separate financial statements
To use HKAS 27 properly, you need to distinguish between two concepts .
Consolidated financial statements
Consolidated financial statements are prepared by a parent company, presenting the parent and all its subsidiaries as if they were a single company :
- Subsidiary assets and liabilities are brought up line by line
- Intra-group transactions and balances are eliminated
- The parent’s investment in subsidiaries is “unpacked” at the consolidated level
The full set of rules sits in HKFRS 10 and HKFRS 3, and HKAS 27 no longer deals with this .
Separate financial statements
Separate financial statements are prepared from a single entity’s perspective, treating investments in subsidiaries, joint ventures and associates as one asset item for presentation, rather than bringing their assets and liabilities up line by line . Simply put, the same subsidiary that gets consolidated line by line in consolidated statements appears as just “one investment” in separate statements . Whether a statement qualifies as separate financial statements under HKAS 27 depends on whether it’s prepared in accordance with HKFRSs and uses the methods permitted by HKAS 27 for relevant investments .
Common pitfall: No subsidiaries ≠ separate financial statements
Some companies only have investments in associates or joint ventures, or even no such investments at all . These statements are formally “individual entity statements,” but may not fall within the narrow HKAS 27 definition of “separate financial statements” . For disclosure of interests in other entities, you’d typically turn to HKFRS 12 .
5. Why HKAS 27 doesn’t feel prominent in practice
At this point, you might be thinking: in daily work, people rarely specifically mention HKAS 27 ? This observation is quite accurate .
First, most users only look at consolidated statements . The consolidated statement of financial position and comprehensive income are the highlights in annual reports—parent company separate statements usually sit in the back pages, and many people don’t even flip to them . Naturally, when people discuss accounting issues, they mostly talk about “how to consolidate” and “how to assess control,” rather than “how HKAS 27 regulates separate statements” .
Second, many companies don’t formally claim compliance with HKFRSs . Small or private companies often prepare accounts just to meet legal or bank requirements, using simplified accounting policies without necessarily stating “these financial statements are prepared in accordance with HKFRSs” . In such cases, even though the statements are formally the company’s own statements, they technically don’t fall within HKAS 27’s “separate financial statements” .
Third, HKAS 27 mostly plays a “framework” role rather than “leading actor” . Once you’ve chosen cost method, HKFRS 9 or equity method, the subsequent detailed measurement and disclosure requirements mostly pass to HKFRS 9, HKAS 28, HKAS 36, HKFRS 5, etc . So practical discussions usually become “this investment is at HKFRS 9 FVPL” or “that one uses HKAS 28 equity method,” without specifically naming HKAS 27 .
So your feeling that “HKAS 27 application scenarios are limited” is reasonable at one level: it’s more often a set of “underlying rules” that quietly determines “whether this statement counts as separate financial statements” and “which routes you can take,” rather than appearing daily in work meetings .
6. Which company roles and structures most commonly encounter HKAS 27?
Rather than asking “which industry uses HKAS 27 most,” ask “which company roles or group structures most commonly need separate financial statements” .
Broadly, there are several categories :
- Listed investment holding companies: Many Hong Kong-listed companies are legally investment holding companies, whose main assets are bundles of subsidiary shares . At the consolidated level, they consolidate all subsidiaries per HKFRS 10; at the parent level, they prepare a separate set of parent company financial statements, usually accounting for subsidiary investments using cost or equity method . These parent company statements are textbook HKAS 27 scenarios .
- Mid-tier holding platforms within groups: Some multinational or multi-layered groups have intermediate holding companies that aren’t listed but need to submit audited company-level statements to banks, creditors or regulators . If these statements are prepared under HKFRSs and the company holds subsidiaries or interests in associates and joint ventures, they’ll deal with these investments under the HKAS 27 framework .
- Investment entities or fund platform companies: Investment entities’ business model is to hold and manage investments, many of which are legally subsidiaries . HKFRS 10 allows them not to consolidate these subsidiaries but to present them at fair value through profit or loss; HKAS 27 extends the same approach to separate statements, maintaining consistency between the consolidated and separate levels’ “fair value view” .
- Certain regulated entities (banks, insurance companies, securities firms): Regulators often want to see both consolidated numbers and the capital position of individual legal entities . When these entities hold investments in other companies at the individual level and their financial statements are prepared under HKFRSs, HKAS 27 determines how those investments are treated in separate statements .
You can tell yourself: HKAS 27 isn’t an everyday leading actor, but whenever you encounter “parent company statements,” “intermediate holding companies,” “investment entities” or “parents not preparing consolidation,” you’ve already stepped into its territory .
7. How HKAS 27 connects with other standards (overview)
Looking at HKAS 27 within the overall HKFRS framework, a “map” is very helpful . Here are a few main lines :
- HKFRS 10: Determines which entities to consolidate and how to consolidate . HKAS 27: When standing at a single entity angle without consolidating, how to treat investments in those entities .
- HKFRS 11: Defines joint arrangements; investments in joint ventures return to HKAS 27’s permitted methods in separate statements .
- HKAS 28: Detailed rules for equity method calculation and disclosure; HKAS 27 only says “you can choose equity method”—how to do it requires HKAS 28 .
- HKFRS 9: When you choose to treat certain subsidiary, associate or joint venture investments as financial assets, specific classification and measurement goes to HKFRS 9 .
- HKFRS 5: When these investments are classified as held for sale, cost or equity method switches to HKFRS 5’s “lower of” model; but if already measured at HKFRS 9 fair value, usually no change to measurement basis .
- HKFRS 12: Focuses on disclosure of interests in other entities, including subsidiaries, joint arrangements, associates and certain structured entities .
You don’t need to memorise all the details at once—having this map means that when you study each standard later, you’ll know where it sits relative to HKAS 27 .
8. Common misconceptions and practice directions
A few common beginner misconceptions :
- Misconception 1: “Separate statements must use cost method”: Actually HKAS 27 permits cost method, HKFRS 9 and equity method—the point is one method per category of investment, not cost-only .
- Misconception 2: “No consolidation means it’s separate financial statements”: No subsidiaries obviously means no consolidation, but whether statements qualify as HKAS 27 separate financial statements also depends on whether there are investments in subsidiaries/associates/joint ventures, whether HKFRSs is adopted, and whether HKAS 27 methods are used .
- Misconception 3: “Equity method only belongs to consolidated statements”: After amendments, equity method can also be used in separate financial statements, provided there’s clear accounting policy choice and disclosure .
If you want to build a solid foundation, try these small exercises :
- Write in your own words the objective and scope of HKAS 27
- Take a listed company annual report and deliberately find the parent company separate financial statements—see which method is used for subsidiary and associate investments
- Whenever you encounter any “investment in other entities” question, first ask yourself: “Are we at the consolidated level or separate level?”
Bottom line: Know which level you’re looking at
The one sentence to remember about HKAS 27 can be :
“HKFRS 10 governs how you view the whole group as one company; HKAS 27 governs how you, standing back at one specific company, treat those ‘investments’ that should be consolidated or equity-accounted.”
Next time you open an annual report and see parent company separate statements alongside consolidated financial statements, deliberately ask yourself :
- Am I looking at “group” level or “single company” level ?
- Which route did this statement choose for investments in subsidiaries, joint ventures and associates ? Is there one method per category ?
- If one day you handle investment entities, parents not preparing consolidation, or group restructuring, the first step should be to recall HKAS 27 and ask: does this statement actually count as separate financial statements ?
Key takeaways for students and junior accountants
- In working papers and audit files: Always clarify at the start whether you’re reviewing consolidated or separate statements—this determines which standards apply and what measurement bases to expect for investments .
- When preparing journal entries for investments: Check the entity’s accounting policy note—if it’s in separate statements, confirm whether subsidiaries are at cost, HKFRS 9 or equity method, and ensure consistency across the same category .
- Common exam trap: Questions may present a parent company’s financial statements without explicitly saying “consolidated” or “separate”—look for clues like “investment in subsidiary shown as single line item” (separate) vs “subsidiary’s assets and liabilities included line by line” (consolidated) .
- In group restructurings or disposals: Remember that treatment may differ between consolidated and separate levels—a subsidiary disposal might derecognise control at consolidated level (HKFRS 10) but only affect one investment line in separate statements (HKAS 27) .
- When reading contracts or investment agreements: If your entity is a non-consolidated parent or investment entity, understanding HKAS 27 helps you communicate how these investments will appear in your statutory accounts .
- Most likely mistake in practice: Assuming all investments in the same group must use the same method—HKAS 27 requires consistency within each category (all subsidiaries, all associates, all joint ventures), but allows different methods across categories .
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