INTRODUCTION TO CONSOLIDATION & GROUP ACCOUNTS 👥

✅ Control by Contractual Arrangements

MFRS 10 (B39)

  • between an investor & other vote holders can give the investor the right to exercise voting rights.
  • might ensure that the investor can direct enough other vote holders on how to vote.

✅ Agency Relationships - "de facto agents"

MFRS 10 (B73)

  • an investor shall consider the nature of its relationship with other parties.
  • requires judgement, considering not only the nature of the relationship but also how those parties interact with each other & the investor.

MFRS 10 (B75) - Who act as "de facto" agents?

  • investor's related parties
  • a party received its interest
  • a party agreed not to sell, transfer / encumber its interest
  • a party that cannot finance its operations
  • an investee for which the majority of the members of its governing body / for which its key management personnel
  • a party that has a close business relationship with investor

✅ Reassessment of Control

MFRS 10 (B80)

  • changes to one / more of the three elements of control listed in para 7.

MFRS 10 (B81) - changes to decision-making rights can mean that relevant activities are no longer directed through voting rights

✅ Potential Voting Rights

✅ Control over Specified Assets

MFRS 10 (B76) - An investor shall consider whether it treats a portion of an investee as a deemed separated entity, and if so, whether it controls the deemed separate entity.

MFRS 10 (B77) - Satisfied Conditions :

  • Specified assets of the investee are the only source of payment for specified liabilities of, or specified other interest in.
  • Other parties with the specified liability do not have rights, obligations.
  • All assets, liabilities and equity of that deemed separate equity (silo) are ring-fenced from overall investee.

MFRS 10 (B90)

  • the proportion allocated to the parent & non-controlling interest in preparing consolidated financial statement is determined by taking into account the eventual exercise of those potential voting rights.
  • other derivatives that currently give the entity access to the returns.

How to apply the control principle? : MRFS (IN9)

  • Investor holds less than a majority of voting right and involving potential voting rights
  • when voting rights are not dominant factor
  • involving agency relationships
  • when the investor has control over specified assets
  • MFRS(B35) : Investor holds more than half of the voting rights of an investee has power
  • MFRS10(B41) : Investor with less than majority rights has rights that are sufficient to give it power when the investor has the ability to direct the relevant unilaterally activities

-MFRS10(B42) : consideration when assessing whether an investor's right are sufficient.

  1. the size of the voting right hold and the dispersion of holdings of the other vote holders
  • more voting rights, more right to direct relevant activities
  • more voting rights hold relative to other vote holders, more right to direct relevant activities
  • more parties act together outvote, more right to direct relevant activities
  1. potential voting rights held by investor, other vote holders or parties
  2. right arising from other contractual arrangements
    4.if there any additional facts or circumstances, current ability to direct relevant activities at the time need to be made

✅Application of the Control Model

✅ Control of Voting Rights

-MFRS10(B43) : the direction of relevant activities is determines by majority vote and an investor hold more voting rights than other vote holder, the other shareholdings are widely dispersed.

de facto control :