IFRS 10 Special control approach

IFRS 10 Special control approach

– 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
  • franchises. IFRS 10 Special control approach

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Continuing involvement

The continuing involvement applies if the entity has neither transferred nor retained all the risks and rewards and control has not passed to the transferee.

Disclosures unconsolidated structured entities

Disclosures unconsolidated structured entitiesIFRS 12 defines structured entity as an entity that has been designed so that voting or similar rights are not the dominant factor on deciding who controls the entity. Paragraph B23 of IFRS 12 provides the following examples of structured entities: Disclosures unconsolidated structured entities

  1. Securitisation vehicles. Disclosures unconsolidated structured entities
  2. Asset backed financings. Disclosures unconsolidated structured entities
  3. Some investment funds. Disclosures unconsolidated structured entities

The term ‘unconsolidated structured entities’ refers to all structured entities that are not controlled by the reporting entity.


Disclosures – Generic model

The level of disclosure in respect of unconsolidated structured entities will depend on the facts and circumstances of the entity but is likely to be more complex for Read more

Structured products or Euro Medium Term Note (EMTN)

Structured products or Euro Medium Term Note (EMTN) – Structured products are combinations of two or more financial instruments, forming together a new investment product. At least one of them must be a derivative product.

Structured products with capital protection are the most frequently traded. Such products can be traded either on the stock-exchange or over-the-counter.

Due to the important number of possible combinations, each structured product has its own risks since the risks associated to each of the elements of this combination can be reduced or even eliminated or enhanced due to such a combination. Consequently, the investor must inquire about the specific risks associated to the relevant structured product. Such information is available, for instance, in the commercial brochures … Read more

Hold to collect – How 2 best account it in IFRS 9 classification of financial assets

The objective of the ‘hold to collect’ business model is to hold financial assets to collect their contractual cash flows, rather than to selling the assets

Securitisation in 1 Best Complete Reading

Securitisation entails pooling the cash flows and selling them to investors via a special purpose vehicle, turning ‘illiquid’ assets into a more ‘liquid’ asset.

Corporate asset-backed security – How 2 best account it in IFRS 9 IAS 32

Corporate asset-backed security includes ‘whole business’ securities based on the cash flows of an entire business unit, such as franchise or brand royalties.

Asset-backed securities

Asset-backed securities (ABSs) are structured finance products backed by pools of assets and are created through a securitisation process. The risks in asset-backed securities, such as credit risk, prepayment risk, market risks, operational risk, and legal risks, are directly connected with the asset pool and the structuring of the securities.