– determines which entities are consolidated in a parent’s financial statements and therefore affects a group’s reported results, cash flows and financial position – and the activities that are ‘on’ and ‘off’ the group’s balance sheet. Under IFRS, this control assessment is accounted for in accordance with IFRS 10 ‘Consolidated financial statements’.
Some of the challenges of applying the IFRS 10 Special control approach include:
identifying the investee’s returns, which in turn involves identifying its assets and liabilities. This may appear straightforward but complications arise when the legal ownership of assets diverges from the accounting depiction (for example, in financial asset transfers that ‘fail’ de-recognition, and in finance leases). In general, the assessment of the investee’s assets and returns should be consistent with the accounting depiction in accordance with IFRS
it may not always be clear whether contracts and other arrangements between an investor and an investee
create rights or exposure to a variable return from the investee’s performance for the investor; or
transfer risk or variability from the investor to the investee IFRS 10 Special control approach
the relevant activities of an SPE may not be obvious, especially when its activities have been narrowly specified in its purpose and design IFRS 10 Special control approach
the rights to direct those activities might also be difficult to identify, because for example, they arise only in particular circumstances or from contracts that are outside the legal boundary of the SPE (but closely related to its activities).
IFRS 10 Special control approach sets out requirements for how to apply the control principle in less straight forward circumstances, which are detailed below: IFRS 10 Special control approach
when voting rights or similar rights give an investor power, including situations where the investor holds less than a majority of voting rights and in circumstances involving potential voting rights
when an investee is designed so that voting rights are not the dominant factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements IFRS 10 Special control approach
involving agency relationships IFRS 10 Special control approach
when the investor has control only over specified assets of an investee
Overview IFRS 10 Consolidated Financial Statements – Short – To establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities Overview IFRS 10 Consolidated Financial Statements
Longer – IFRS 10 replaces the part of IAS 27 Consolidated and Separate Financial Statements that addresses accounting for subsidiaries on consolidation. What remains in IAS 27 after the implementation of IFRS 10 is the accounting treatment for subsidiaries, jointly controlled entities and associates in their separate financial statements.
The aim of IFRS 10 is to establish a single control model that is applied to all entities including special purpose entities. The changes require those dealing with the implementation of IFRS 10 to exercise … Read more
Investments in Joint Ventures Overview that is what this is……
An entity with joint control of an investee shall account for its investment in a joint venture using the equity method except when that investment qualifies for exemption in IAS 28. Investments in Joint Ventures Overview
The exemptions include:Investments in Joint Ventures Overview
all of the following apply: Investments in Joint Ventures Overview
the entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled
IFRS 10 Consolidation Assess control over an investment is the key to consolidate a investee entity or not. Whether a subsidiary or a consolidated structured entity.
Voting rights in subsidiaries
In many cases, when decision-making is controlled by voting rights, and those voting rights entitle an entity to returns (e.g., voting shares), it is clear that whoever holds a majority of those voting rights controls the investee. However, in other cases (such as for structured entities, or when there are potential voting rights, or less than a majority of voting rights), it may not be so clear. Consolidation Assess control over an investment
Contractual relations for consolidated structured entities
In those instances, further analysis is needed and the factors … Read more
Potential voting rights – An investor may hold instruments that (if exercised or converted), give the investor power to direct the relevant activities. These are called ‘potential voting rights’ and may be held through ownership of the following types of instrument:
share options and warrants Potential voting rights
convertible bonds Potential voting rights
convertible preference shares. Potential voting rights
Potential voting rights can contribute to control of an investee in combination with current voting rights, or even confer control on their own. However, IFRS 10 requires an assessment to determine whether potential voting rights are substantive. IFRS 10 has no bright lines and so judgment will be required.
IFRS 10’s ‘substantive’ assessment takes into account both:
Purpose and design of the investee – When assessing control of an investee, an investor shall consider the purpose and design of the investee in order to identify the relevant activities, how decisions about the relevant activities are made, who has the current ability to direct those activities and who receives returns from those activities.
Proportionate voting rights
When an investee’s purpose and design are considered, it may be clear that an investee is controlled by means of equity instruments that give the holder proportionate voting rights, such as ordinary shares in the investee. In this case, in the absence of any additional arrangements that alter decision-making, the assessment of control focuses on which party, if any, is able … Read more
Continuous assessment of control is part of documenting your consolidation routines. Control is reassessed if facts and circumstances say there are changes
A business combination is: a transaction or event in which acquirer obtains control over a business e.g. acquisition of shares or net assets, legal mergers,
Control of an investee exists when an investor controls an investee as it's exposed, or has rights, to variable returns from its involvement with the investee
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IFRS 10 Consolidation Assess control over an investment is the key to consolidate a investee entity or not. Whether a subsidiary or a consolidated 
Potential voting rights – An investor may hold instruments that (if exercised or converted), give the investor power to direct the