Consolidations and joint ventures. Academic Resource Center Consolidations and joint ventures Page 2...

Consolidations and joint ventures

Academic Resource Center


Typical coverage of US GAAP

► Scope

► Combined financial statements

► Consolidation model

► Presentation of consolidated financial statements

► Non-controlling interest (minority interest)

► Variable interest entities (VIE) and special purpose entities

► Joint ventures

► Disclosures



Executive summary

► IFRS and US GAAP are fairly well converged with respect to business consolidations. US GAAP has two models for consolidation – one for voting interest entities and one for variable-interest entities (VIEs), while IFRS has one model for all entities.

► The general consolidation model is basically the same under IFRS and US GAAP, with some differences related to the determination of control.

► In certain circumstances, both IFRS and US GAAP allow up to a three-month difference between the reporting dates of a parent and a subsidiary. Significant events during this gap period require adjustment under IFRS, while US GAAP only requires disclosure.

► IFRS requires that accounting policies be conformed between a parent and its subsidiaries, while differences are permitted under US GAAP.

► Upon initially obtaining control, IFRS provides two options for the parent in valuing non-controlling interests (NCI) (full fair value or fair value of identifiable assets), while under US

GAAP, only the full fair-value method is allowed.



Executive summary

► Structured entities (previously referred to as special-purpose entities (SPEs) under IFRS and variable-interest entities under US GAAP are evaluated for consolidation. For these entities, IFRS is focused on control while US GAAP is focused principally on determining the primary beneficiary based on both the power to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits.

► The accounting guidance for joint ventures is similar under IFRS and US GAAP with both requiring the use of the equity method of accounting.



Primary pronouncements

US GAAP

► ASC 810-10, Consolidations

IFRS

► IFRS 10, Consolidated Financial Statements (effective January 1, 2013, with early adoption permissible)

► IAS 27 (amended), Separate Financial Statements – After amendment in 2011, the remaining guidance is limited to accounting for subsidiaries, jointly controlled entities and associates in separate financial statements.

► IFRS 11, Joint Arrangements (effective January 1, 2013, with early adoption permissible)

► IFRS 12, Disclosure of Interests in Other Entities (effective January 1, 2013, with early adoption permissible)



Progress on convergence

► The Boards’ objectives were to develop one consolidation model that could be applied consistently for all types of entities and produce globally comparable results.

► The IASB issued its guidance in May 2011. ► IFRS 10 addresses the accounting guidance for consolidation

and addressed inconsistencies in practice between IAS 27 and SIC 12 when an entity controls less than a majority of the voting rights but still controls that entity.

► IFRS 11 requires a party to a joint arrangement to determine the type of joint arrangement by assessing its rights and obligations. It also eliminates the option of proportionate consolidation as a method of accounting for a joint arrangement.

► IFRS 12 addresses users’ requests for improvements in the disclosure of a reporting entity's interests in other entities.




► The FASB issued an ED on November 3, 2011, with comments due January 17, 2012, proposing to:

► Not move forward with a single consolidation model but retain two distinct consolidation models, one for voting entities and one for VIEs. The ED would continue to require an evaluation of whether a decision maker has a variable interest in an entity. However, it would also require a separate determination of whether an entity is using its power in a principal or an agent capacity. While US GAAP would have two models, it would more closely align the consolidation requirements with IFRS by:

► Requiring a principal-agent determination: a reporting entity’s decision maker would need to make an principal-agent determination using three qualitative factors: (1) its compensation, (2) variability of returns from other interests it holds and (3) the rights held by others. If it is determined that the decision maker acts as a principal, demonstrating that it uses its power to effectively control, it would be required to consolidate.

► Substantive rights (such as kick-out or participating) held by others may affect the decision maker’s ability to direct the activities that significantly impact an entity’s economic performance and may indicate the decision maker is an agent and not than a principal. This approach in the ED would align the consideration of kick-out and participating rights to eliminate the current inconsistency between the voting and variable interest models.




► In February 2010, ASU No. 2010-10, Consolidation (Topic 810): Amendments for certain Investment Funds, was issued, which defers the effective date of SFAS No. 167 for certain investment funds. The ED issued on November 3, 2011 (with comments due January 17, 2012) would rescind this deferral.

► On August 25, 2011, the IASB issued a proposal to exempt investment entities from the consolidation requirements of IFRS 10. Instead, these entities would be required to account for their investments at fair value through income. On October 21, 2011, the FASB issued an ED on investment companies with comments due January 5, 2012. The proposal would change the definition of an investment company. While the definition would be similar to IFRS, there are some important differences, which are beyond the scope of this material. Investment companies that have controlling interests in other investment companies would be required to consolidate their investment company subsidiaries.

► On December 20, 2011, the IASB issued an ED to clarify the transition guidance in IFRS 10. The proposed effective date coincides with the effective date of IFRS 10. Comments on the ED are due by March 21, 2012.



Scope

Consolidated financial statements are required when consolidation criteria are met with some exception, such as for employee benefit plans.

IFRSUS GAAP

Similar



Scope

IFRS

► IFRS provides a limited exception for a parent to not present consolidated financial statements if the following criteria are met:

► It is a subsidiary of another entity and the shareholders of its parent do not object.

► It does not have any debt or equity instruments traded in public markets, and it is not in the process of registering public debt or equity.

► The immediate or ultimate parent must prepare and publish consolidated IFRS financials.

US GAAP

► US GAAP provides certain industry exceptions to the application of consolidation guidance, which currently includes investment companies.



Combined financial statements

IFRS

► Combined financial statements are generally not acceptable as general purpose financial statements under IFRS, except under rare circumstances requiring a true and fair override.

US GAAP

► Combined financial statements are permitted under US GAAP if the entities being combined are under common control or management.



Consolidation model

An entity is generally required to consolidate entities it controls.

Control is presumed to exist if the parent owns more than 50% of the voting stock.

A full elimination of revenues, expenses and asset transfers between companies of a consolidated group is required

Similar

IFRSUS GAAP

Similar

Similar



Consolidation modelDistinction of voting interest entities and VIEs

IFRS

► IFRS has a single consolidation model applicable to all entities, including structured entities.



Consolidation modelDefinition of control – US GAAP



Consolidation modelDefinition of control – IFRS



Consolidation modelDefinition of control - IFRS



► Defacto control can occur when there is only one significant shareholder that owns less than 50% of the voting stock and other shareholders are disbursed and generally don’t exercise their voting rights.

► IFRS considers defacto control while US GAAP does not have a similar concept.

Consolidation modelDefinition of control – defacto control



Consolidation model

US GAAP IFRS

Because the IFRS definition of control is much broader than US GAAP, it is possible to reach different conclusions as to control. However, for public companies, the SEC has a much broader notion of control, which is similar to IFRS.

►Under the SEC’s definition, control exists when one entity possesses the power to direct policies of another entity, either by ownership of voting shares, by contract or by other means.



Example 1

Company A owns 49% of the voting stock of Company B. Company A has a currently exercisable option to purchase an additional 2% of the voting stock at a cost of $50 per share. The shares are currently valued at $30.

Consolidation considerations – voting rights example

► Would Company A consolidate Company B under US GAAP or IFRS? Explain your answer.



Example 1 solution:

US GAAP:

Company A would not have to consolidate Company B since under US GAAP potential voting rights are not considered.

IFRS:

Company A would have to consolidate Company B under IFRS because potential voting rights must be considered if they are exercisable, regardless of the intent or ability to exercise those rights.

Consolidation considerations – voting rights example



Example 2

The Rich family started a local bank in 1920. The family still owns 40% of the stock of the local bank through its Rich Holding Company (RHC). The remaining stock is widely dispersed and these stockholders typically do not participate in the annual meetings and exercise their voting rights. RHC prepares it financial statements under IFRS. RHC

may need to consolidate the local bank because of the de facto control.

Consolidation considerations – de facto control example

► Is this statement true or false?



Example 2 solution:

True. Under IFRS, a company should consolidate if defacto control is present. In this scenario, the Rich Family has a majority share less than 50% but the remaining shares are widely dispersed and these shareholders are not expected to exercise their voting rights.

Consolidation considerations – de facto control example



Example 3

The Summer family owns and operates a ball bearing company and a drug store. The family is seeking a bank loan. The bank has requested combined financial statements be prepared.

Consolidation considerations example – combined financial statements

► Is this presentation acceptable under US GAAP and/or IFRS? Explain your answer.



Example 3 solution:

US GAAP:

Yes. Combined financial statements would be acceptable under US GAAP since the ball bearing company and the drug store are under common control and common management.

IFRS:

No. Combined financial statements are generally not acceptable as general purpose financial statements under IFRS, except under rare circumstances requiring a true and fair override.

Consolidation considerations example – combined financial statements



Presentation of consolidated financial statements

In certain instances, up to a three-month difference is allowed between the reporting dates of a parent and a subsidiary.

Similar

IFRSUS GAAP



Presentation of consolidated financial statementsReporting date

IFRS

► IFRS requires that the reporting date of the parent and the subsidiary should be the same unless it is impractical to do so. In the event that it is impractical, IFRS permits up to a three-month lag.

► Possible examples of impractical situations might arise when a subsidiary’s accounting systems are manual or there are significant estimation processes that require additional time to prepare and evaluate.

US GAAP

► Allows up to a three-month difference between the year-end of the parent and the subsidiary.



Presentation of consolidated financial statementsSubsidiary year-end precedes parent year-end

IFRS

► Requires adjustment of the financial statements to reflect the impact of significant events during this period.

US GAAP

► Significant events during this time period must be disclosed in the financial statements of the parent, but adjustments are not typically made to the financial statements.



Presentation of consolidated financial statementsAccounting policies

IFRS

► The accounting policies of the subsidiary must be the same as its parent. When they differ, it will result in the need for top-side adjustments in consolidation to conform the subsidiary’s accounting policies to those of its parent.

US GAAP

► A parent and a subsidiary are permitted to have different accounting policies. This is most likely to occur when the subsidiary is following some specialized industry guide.



Example 4

Low Tech, a US-based company, has a June year-end. It acquired Company B in the Amazon Basin in August. Company B lacks a sophisticated accounting system and requires 60 to 70 days to close its books at the end of each quarter. Part of the reason for the delay in closing the books is there are several complex accounting estimates that must be re-evaluated each quarter. Low Tech has evaluated the accounting systems and the estimation processes, but has not been able to find a way to expedite the quarterly closing process.

Difference in year-end example

► Can Low Tech consolidate Company B based on a May year-end under either US GAAP or IFRS? Explain your answer.



Example 4 solution:

US GAAP:

US GAAP allows up to three months difference between the year-end of the parent and the subsidiary, thus a May year-end for Company B would be acceptable.

IFRS:

IFRS permits up to a three-month lag if it is impractical to prepare subsidiary statements as of the same date. IAS 1.7 states, “... a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.” It appears the impractical requirement has been met so a May year-end for Company B would be acceptable.

Difference in year-end example



Example 5

The Parent Company has a June 30 year-end and its wholly owned subsidiary has a May 31 year-end. Assume all the requirements for different reporting dates have been met. On June 15, a competitor introduces a new technology-enhanced product which makes obsolete $10.0 million of Parent Company’s inventory and $2.0 million of the subsidiary’s inventory.

Significant events during a difference in year-end example

► What would be the impact on the consolidated June 30 financial statements under US GAAP and IFRS?

► Show any required journal entries as of June 30.



Example 5 solution:

US GAAP:

US GAAP requires significant events during this time period to be disclosed in the financial statements of the parent. Adjustments for significant events that occur in the gap period generally are not recorded under US GAAP. As such, only the entry to record the obsolescence of Parent Company’s inventory is necessary.

Cost of sales of parent $10,000,000

Inventory of parent $10,000,000




Example 5 solution (continued):

IFRS:

IFRS requires adjustment of the financial statements to reflect the impact of significant events during the gap period.

Cost of sales of parent $10,000,000

Inventory of parent $10,000,000

Cost of sales of subsidiary $2,000,000

Inventory of subsidiary $2,000,000




NCI (non-controlling interest formerly minority interest)

Changes in the ownership interest of a subsidiary (that does not result in loss of control) will generally be accounted for as an equity transaction (paid-in capital) and will have no impact on goodwill, nor will they give rise to a gain or loss.

Similar

IFRSUS GAAP

► Both US GAAP and IFRS utilize the concept of a non-controlling interest (NCI).

► ASC 810-10-65-1 defines this concept as: “A non-controlling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.”

► US GAAP and IFRS generally are converged as it relates to NCI.



NCI (non-controlling interest)

Upon a loss of control of a subsidiary, a new basis recognition event occurs, where essentially a gain or loss is recognized on 100% of the interest held. The retained NCI will be remeasured to fair value and will impact the gain or loss recognized upon disposal.

The gain or loss is calculated as follows: proceeds plus the fair value of any retained interest plus the carrying amount of NCI in the former subsidiary minus the carrying amount of the former subsidiary’s net assets, plus or minus components of equity reclassified to profit or loss.

Similar

IFRSUS GAAP




Losses applicable to NCI are allocated to those interests even if that results in a deficit position.

NCIs are generally classified on the balance sheet as equity, separate from the equity of the parent, and both present income from NCIs as an allocation of that period’s comprehensive income.

Similar

Similar

IFRSUS GAAP




IFRS

► Upon obtaining control, there is a choice to initially measure NCI at fair value, including goodwill, on the date of acquisition (fair value method) or at the fair value of the NCI’s proportionate share of the acquiree’s identifiable net assets as measured at the acquisition date (without goodwill) (proportionate method). This choice is to be made for each business combination.

US GAAP

► Upon obtaining control, the acquisition of NCI must be measured at fair value, including goodwill.



Example 6

Under both US GAAP and IFRS, which of the following is not a consideration related to consolidations?

Consolidation considerations – general example

► Focus on control

► Restrictions on NCIs being negative

► Elimination of revenues and expenses between members on a consolidated group

► None of the above



Example 6 solution:

There is no restriction on NCI (minority interest) being negative under US GAAP or IFRS.

Consolidation considerations – general example



Example 7

A parent owns 70% of a subsidiary. The carrying amount of the NCI of 30% is $150 million under the full fair-value method. There are no amounts accumulated in other comprehensive income for this subsidiary. The parent acquires an additional 10% from the NCI for $60 million in cash. Assume the parent used the full fair-value method to initially measure the NCI upon obtaining control of the subsidiary.

NCI – fair-value method example

► Prepare the required journal entries to record the acquisition of the additional 10% interest in the subsidiary under US GAAP and IFRS.



Example 7 solution:

In recording the acquisition of the additional 10% interest in the subsidiary, under US GAAP and IFRS, the carrying amount of the NCI is adjusted to reflect the change in ownership interests in the subsidiary’s net assets since the transaction does not result in a change in control. Any difference between the amount by which the NCI is adjusted and the fair value of the consideration paid is attributed to the parent.

The journal entry to record the additional 10% interest in the subsidiary under both US GAAP and IFRS would be as follows:

NCI $ 50,000,000(1)

Additional paid-in capital 10,000,000

Cash $60,000,000

(1) (10%/30% = 33.33%) x $150,000,000 (rounded)

NCI – fair-value method example



Example 8

In the current year, Company A acquires 70% of the voting stock of Company S for $770,000 in cash. At the date of acquisition by Company A, the fair value the identifiable net assets of Company S is $900,000. The fair value of the 30% NCI is $300,000. Company A paid a $70,000 control premium to obtain control over Company S.

NCI – fair-value and proportionate methods example

► Show the calculations and journal entries to record Company A’s investment in Company S under the fair-value method and the proportionate method.



Example 8 solution:

Proportionate method:

Cash $770,000

Company A’s portion of the fair value of the identifiable net assets in Company S (630,000)(1)

Goodwill $140,000

(1) $900,000 x 70% = $630,000

Journal entry:

Fair value of identifiable net assets $900,000

Goodwill 140,000

Cash $770,000

NCI 270,000(2)

(2) $900,000 x 30% = $270,000





Fair-value method:

Cash $770,000

Fair value of the NCI 300,000

Fair value of the identifiable net assets of Company S (900,000)

Goodwill $170,000

Journal entry:

Fair value of identifiable net assets $900,000

Goodwill 170,000

Cash $770,000

NCI 300,000




VIEs and Structured Entities

IFRS

► Under IFRS, the cost of the entity is allocated to identifiable assets and liabilities (no goodwill is recorded) on the basis of their fair value at the date of purchase. Therefore, under IFRS, there is no gain or loss.

US GAAP

► Under US GAAP, upon the initial consolidation of an entity that is not a business a gain or loss is recognized for the difference between:

(1) The fair value of the consideration paid, the fair value of any NCI and the reported amount of any previously held interests.

(2) The VIE’s net assets.

► No goodwill is recognized if the VIE is not a business.



VIEs and Structured Entities

IFRS

► In general, the criteria used to determine whether or not to consolidate the structured entity are somewhat different under US GAAP and IFRS.

► Under IFRS, the consolidation criteria are focused more on control.

US GAAP

► Under US GAAP, they are focused principally on the primary beneficiary of the VIE (determined based on the consideration of both the power to direct the activities of the entity and the obligation to absorb losses or the right to receive benefits).



Example 9

A franchisor invests money in the preferred stock of a franchisee that is in financial difficulty. The franchisee is in a deficit position and has no other source of equity. The franchisor has no voting interest in the franchisee.

Voting control versus primary at-risk example

► Should the franchisor consolidate this franchisee under US GAAP and/or IFRS? Explain your answer.



Example 9 solution:

US GAAP:

The franchisee would appear to be a VIE since it has insufficient equity to carry on its operations. A determination of whether the franchisor is the primary beneficiary (determined based on the consideration of both the power to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits) needs to be made. The franchisor, as an equity owner of non-voting preferred stock is unable to make decisions about the entity’s activities. There may be control of some sort through the franchisee agreement, which will need to be evaluated. The franchisor likely receives some benefits from the franchisee (either from selling its products or from fees). Additionally, it could be argued the franchisor is absorbing losses because it is investing money in a financially troubled franchisee. It would appear that there may be an argument for consolidating this franchisee. The particular facts and circumstances would need to be carefully evaluated.

Voting control versus primary at-risk example




IFRS:

Under IFRS, whether the franchisee should be consolidated is less clear. There is no voting control so, from that perspective, one might conclude that consolidation is not required. If there is control of some sort through the franchisee agreement and the franchisor receives some benefits from the franchisee (either from selling its products or from fees), there may be an argument for consolidating this franchisee. The particular facts and circumstances would need to be carefully evaluated.

Voting control versus primary at risk example



Example 10

►Company A makes an initial $100,000 cash investment in a VIE (structured entity) that is not a business. It is determined that Company A should consolidate this VIE. At the time of the initial investment, the fair value of the VIE’s assets is $120,000 and the fair value of its liabilities is $40,000. The fair value of the NCI is $10,000.

►Show the accounting entries to record the consolidation of this VIE on Company A’s books under both US GAAP and IFRS.

VIE that is not a business example



Example 10 solution:

►US GAAP: Company A recognizes a gain or loss for the difference between: (1) the sum of the fair value of the consideration paid, the fair value of any NCI and the reported amount of any previously held interests; and (2) the VIE’s net assets. No goodwill is recognized if the VIE is not a business.

VIE assets $120,000

Loss 30,000

VIE liabilities $ 40,000

Cash 100,000

NCI 10,000





► IFRS:

Under IFRS, the cost of the entity is allocated to identifiable assets and liabilities (no goodwill is recorded) on the basis of their fair value at the date of purchase. Therefore, under IFRS, there is no gain or loss.

VIE assets $150,000

VIE liabilities $ 50,000

Cash 100,000

Note: cash paid of $100,000/(net assets $120,000 - $40,000) = 1.25. This 1.25 x $120,000 = $150,000 and 1.25 x $40,000 = $50,000.




Joint arrangements

The equity method of accounting for joint arrangements is allowed.

The equity method of accounting for joint arrangements is required

Similar

IFRSUS GAAP



Joint ventures

► IFRS defines a joint arrangement as a contractual arrangement over which multiple parties have joint control. Joint control is now defined per IAS 11, paragraph 7, as:

“The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.”

► IFRS addresses the accounting for two categories of joint arrangements:

► Joint operations

► Joint ventures



Joint venturesJoint operation

IFRS

► A joint operation is an arrangement where the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is an arrangement where the parties have joint control of the arrangement and have rights to the net assets of the arrangement.

► An example of a joint operation would be when two companies agree to develop a new garbage disposal unit. One company is developing the motor and the other company is developing the rest of the unit. Each company would pay its own costs and they would share the revenue, based on a contractual agreement.

US GAAP

► Does not specifically address the accounting for joint operations.



Joint arrangementsJoint venture

For a joint venture, a separate vehicle with an identifiable financial structure is generally established .

► An example of a joint venture would be when two companies set up a separate entity to manufacture fan blades and neither company has rights to the assets and obligations for the liabilities of the separate entity. Each company would contribute assets to the joint venture.

Similar

IFRSUS GAAP



Joint venturesJoint venture contribution

IFRS

► Under IFRS, the contribution of non-monetary assets is recognized at fair value, with any gains or losses being recognized to the extent of the other parties’ interest in the joint arrangement.

US GAAP

► A venturer generally records its contribution to a joint venture at cost. There are some exceptions to this general rule (such as when the other venturers contribute cash or commonly considered cash equivalents).



Joint venturesMethod of accounting for joint arrangements

IFRS

► Joint operations: requires the parties that have joint control to recognize their share of the assets, liabilities, revenue and expenses.

► Joint ventures: requires the equity method accounting for joint ventures.

► Proportionate consolidation is not allowed.

US GAAP

► Generally requires using the equity method of accounting for jointly controlled entities.

► Proportionate consolidation is only allowed where it is industry practice (for example, in the extractive and construction industries).



Example 11

Three companies form a manufacturing joint arrangement. Company A owns 40%, Company B owns 30% and Company C owns 30% of the voting shares of the joint arrangement. Income and losses of the joint arrangement are shared equally. Any resolutions require approval of at least 60% of the shareholders. Each company can appoint one member to the board of directors.

Joint arrangement example

► Discuss how the joint arrangement should be accounted for on each company’s books under both US GAAP and IFRS.




US GAAP:

Under US GAAP, the equity method of accounting for the joint venture should be used by each company.

IFRS:

Under IFRS 11, this joint arrangement would be accounted for as a joint venture because no single company can control this joint arrangement. Therefore, the equity method should be used by each company to account for its interest in the joint venture.

Joint arrangement example



Example 12

Company A and Company B form a joint venture. Company A contributes a subsidiary with separable net assets with a book value of $50.0 million (fair value of $60.0 million). Company B contributes a subsidiary with separable net assets with a book value of $70.0 million (fair value of $90.0 million). Company A will own 40% of the joint venture and Company B will own 60% of the joint venture.

Joint venture example

► How should this transaction be accounted for by Company A under US GAAP and IFRS? Show all required journal entries.




US GAAP:

No gain would be recorded and the investment in the joint venture would be recorded at the cost of the assets given up.

Investment in joint venture $50,000,000

Net assets of subsidiary $50,000,000

IFRS:

Under IFRS, the contribution of non-monetary assets is recorded at cost, with any difference between this cost and the fair value of its share of the assets and liabilities of the joint venture recorded as a gain or loss. Company A now owns 40% of the joint venture with a fair value of $150.0 million ($60.0 million plus $90.0 million), worth $60 million.

Investment in joint venture $60,000,000

Net assets of subsidiary $50,000,000

Gain on disposal 10,000,000

Joint venture example



Disclosures

Disclosure of the general consolidation policy is required.

If a consolidated subsidiary has a different year-end than the parent, disclosure is required. The reason for the different year-end also should be disclosed.

Similar

Similar

IFRSUS GAAP

Disclosure of any changes in the subsidiaries being consolidated is required. Similar



Disclosures

IFRS► Requires adjustment of the financial statements to

reflect the impact of significant events during this period.

► IFRS 12 now requires disclosure of the judgments made in determining whether or not another entity is controlled. IFRS 12 also requires summarized financial for material joint ventures and associates as well as expanded disclosures on restrictions on their assets and liabilities.

► Provides for limited circumstances when a parent does not have to present consolidated financial statements, if certain criteria are met. Disclosure that the financial statements reflect the exemption from consolidation is required.

US GAAP

► If a subsidiary has a year-end that precedes the parent’s year-end, significant events during this time period must be disclosed in the financial statements of the parent, but adjustments typically are not made to the financial statements.

► No similar required disclosures.

► Does not have this option.



IFRS 10 overview

Activities

Activities thatsignificantly affect returns

Examples:► Operating policies► Capital decisions► Appointing key

management► Management of

underlying investments

Power

Current ability to direct thoseactivities

Examples:► Voting rights► Potential voting rights ► Right to appoint key

management► Decision making rights► “Kick out” rights

Returns

Exposed to variable returns

Examples:► Dividends► Remuneration► Returns that are not

available to others (scarce products, cost reductions, synergies, economies of scale, proprietary knowledge)



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