Group Accounts - the concept of control Flashcards
What defines Control of an entity
and what is the IFRS standard relating to this?
An investor (parent) controls an investee (subsidiary) when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee
IFRS 10, Full consolidation method
What is power in the context of a Parent subsidiary relationship?
Rights that give parent the ability to direct activities of the subsidiary. ( such as voting rights attached to shares, control of the board, or a contractual agreement.)
What are variable returns to the parent?
Return from its subsidiary could vary depending on performance of the subsidiary, and parent can use their power to affect these returns.
By owning >50% of a firm does that always give control to the parent?
Under IFRS 10, the % isn’t necessarily what determines control, but whether the parent has the Power and rights/exposure to variable returns of the subsidiary. Essentially, whether the investor has decision making power over the investee.
What is De Facto Control in IFRS 10
De facto control exists in situations where the group has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights in the general meeting of shareholders.
What are the criteria for De Facto Control in IFRS 10? (4 relevant criterias)
- The size of the group’s voting rights relative to both the size and dispersion of other parties who hold voting rights
-Substantial potential voting rights held by the group and by other parties
- Other contractual arrangements
- Historic patterns in voting attendance.
How is significant influence defined?
And what is the assumed amount for voting power of significant control?
Power to participate in the financial and operating policy decisions of the investee, but is not control or joint control of those policies
Assumed amount is >20% unless clearly specified
What is the term for entities under the significant influence? starts with “A”
What is the IFRS Standard for significant influence?
Associates
IAS 28, Equity Accounting
What is Joint control legally?
What is the IFRS standard that jurisdictions joint control?
Contractual agreement sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
IAS 28, Equity Accounting
What is the term for entities under joint control>
Joint arrangement
Which standard relates to financial investment? AKA no significant influence.
IFRS 9, Fair value or historical cost
