Knowledge base for IFRS Reporting
“Power” is defined as the investor having such rights that (s)he can direct the activities that affect the investee’s returns. In the simplest cases, such power arises from the voting rights granted by shares. A parent company exerts power when it owns directly or through intermediate subsidiaries more than half of the voting power of the investee. Its vote allows it to direct the investee’s activities and appoint key members of its governing body.
Protective rights relate to fundamental changes to the activities of an investee or apply in exceptional circumstances. However, not all rights that apply in exceptional circumstances or are contingent on events are protective. Because protective rights are designed to protect the interests of their holder without giving that party power over the investee to which those rights relate, an investor that holds only protective rights cannot have power or prevent another party from having power over an investee.
Continuous assessment of control is part of documenting your consolidation routines. Control is reassessed if facts and circumstances say there are changes
A party is a de facto agent when the investor has, or those that direct the activities have, the ability to direct that party to act on the investor’s behalf.
Control by using options explores the rare situation of not having a straightforward majority of the voting rights in an investee and being in control, but a less straightforward control situation through contractual arrangements (put and/or call options) Following is a case on the assessment whether certain stakeholders in a transaction/structure have obtained control over a certain entity in the transaction in line with the requirements of IFRS 10 Consolidated financial statements. Only one stakeholder can be in control! [IFRS 10 B16] Or no stakeholder is in control. Or one stakeholder is in control and has to consolidate the investigated entity in its consolidated financial statements. Here is the case. Control by using options THE CASE – Assessing control with … Read more