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Assessing control - investor assessment

An investor shall determine whether it is a parent by assessing whether it controls the investee.


An investor controls an investee when:

- it is exposed, or has rights, to variable returns from its involvement with the investee; and

- the investor has the ability to affect those returns through its power over the investee.

TABLE 12.8 Group balance sheet

Group balance sheet

An investor controls an investee only if it has all three of:

1 power over the investee;

2 exposure, or rights to, variable returns from its involvement with the investee;

3 the ability to use its power over the investee to affect the amount of the investor's returns.

Note: this does not include situations where two or more investors collectively control an investee, because no individual investor can direct the relevant activities - each investor would account for its interest in the investee in accordance with IFRS 11 Joint Arrangements.

Determining control

Application Guidance states that consideration of the following may help in determining whether an investor controls an investee:

- The purpose and design of the investee - for example, an investee may be designed so that voting rights are not the dominant factor in assessing control; it may be that the relevant activities are directed by means of contractual arrangements.

- What the relevant activities are and how decisions about these activities are made.

Examples of activities that might in some circumstances be relevant activities include: selling and purchasing of goods or services; managing financial assets during their life; selecting, acquiring or disposing of assets; researching and developing new products or processes; determining a funding structure or obtaining funding.

Examples of decisions about relevant activities include: establishing operating and capital decisions of the investee, including budgets; appointing and remunerating an investee's key management personnel and terminating their services or employment:

- whether the rights of the investor give it the current ability to direct the relevant activities. This is a complex area covered in extensive detail in guidance paragraphs under the heading 'rights that give an investor power over an investee' - this extends to over 16 pages and includes several examples;

- whether the investor is exposed, or has rights, to variable returns from its involvement with the investee;

- whether the investor has the ability to use its power over the investee to affect the amounts of the investor's returns.

An investor should consider the nature of its relationship with other parties.

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