INTRODUCTION
• Company is a separate legal entity constituted by the requirements of the Companies
Act.
• the company is it requires that the financial reporting standard adopted by a company
must be consistent with IFRS.
• The standards that are relevant to the preparation of group consolidated financial
statements are IFRS-10 And IFRS-3.
CONSOLIDATED FINANCIAL STATEMENTS: IFRS-10
• The standard sets out what forms part of control as well as the accounting
requirements for consolidated financial statements.
• the objective of the standard is to establish principles for preparing and presenting a
consolidated financial statement when an entity controls one or more entities.
• the standard requires the parent, the company that has interest t in other companies,
to present consolidated financial statements.
• it also defines the principles of control as the sole determinant for the basis of
consolidation
• it also sets out the principles of control to determine whether any investor controls an
investee.
• it also sets out the accounting requirements for the preparation of the consolidated
financial statements.
Control of investee
The investor controls an investee when :
• The investor is exposed
• Has the right to variable returns from its involvement with the investee?
• has the ability to affect those returns through its power over the investee.
,CONTROL
• our main focus use on control.
• An investor controls an investee if all the following are present
▪ The investor has the power over the investee
▪ the investor is exposed to or has the rights to variable returns from its
involvement with the investee.
▪ the investor has the ability to use its power over the investee to affect
the amount of the investors returns.
1.POWER
• This is when an investor has existing rights that gives the current ability to direct the
relevant activities that will significantly affect the investees returns.
• power arises from right like voting rights however to determine power there are
various factors that needs to be considered.
• and investor can have rights over a company even if they are also other companies
that have the rights in that same company. this is when we will consider the
significance of the right.
• only substantive rights are considered not protective rights
SUBSTANTIVE RIGHTS
• a substantive right is a right that is exercisable when decisions about a direction of a
company are made.
• The investor must have the practical ability to exercise that right
• in short this is the right that we're able to use and we can exercise that right because
it's pointless to have a right that you can use but still you don't have the ability to use
that's right.
, PROTECTIVE RIGHTS
• These are rights that are given to the investor to protect the interest of the investor
without giving the investor power over the entity to which those rights relates to.
• Protective rights are rights that protect the investor but does not give the investor
power over they investee.
• for an example an investor may have the right to seize the assets of investing in case
the investee default.
2.RETURNS
• And investor is exposed to or has the rights to variable returns from its involvement
with the investee.
• only one investor can control the investee but they are many investors that can have
a share on the investees returns.
3.LINK BETWEEN POWER AND RETURNS.
• Besides having the power over the investee you must also have the ability to influence
the returns of the investee due to your involvement.
• End investor must determine whether it is acting as an agent or as a principal.
• if you are acting as an agent you do not control the investee.
4. ASSESSING CONTROL
• In terms of IFRS-10 there is a detailed guide on the factors that need to be considered
when we are trying to assess control.
• And investor shall consider this in order to identify control:
o the relevant activities
o how the decisions about relevant activities are made
o who has the current ability to direct those activities, and
o who receives returns from those activities.
• Company is a separate legal entity constituted by the requirements of the Companies
Act.
• the company is it requires that the financial reporting standard adopted by a company
must be consistent with IFRS.
• The standards that are relevant to the preparation of group consolidated financial
statements are IFRS-10 And IFRS-3.
CONSOLIDATED FINANCIAL STATEMENTS: IFRS-10
• The standard sets out what forms part of control as well as the accounting
requirements for consolidated financial statements.
• the objective of the standard is to establish principles for preparing and presenting a
consolidated financial statement when an entity controls one or more entities.
• the standard requires the parent, the company that has interest t in other companies,
to present consolidated financial statements.
• it also defines the principles of control as the sole determinant for the basis of
consolidation
• it also sets out the principles of control to determine whether any investor controls an
investee.
• it also sets out the accounting requirements for the preparation of the consolidated
financial statements.
Control of investee
The investor controls an investee when :
• The investor is exposed
• Has the right to variable returns from its involvement with the investee?
• has the ability to affect those returns through its power over the investee.
,CONTROL
• our main focus use on control.
• An investor controls an investee if all the following are present
▪ The investor has the power over the investee
▪ the investor is exposed to or has the rights to variable returns from its
involvement with the investee.
▪ the investor has the ability to use its power over the investee to affect
the amount of the investors returns.
1.POWER
• This is when an investor has existing rights that gives the current ability to direct the
relevant activities that will significantly affect the investees returns.
• power arises from right like voting rights however to determine power there are
various factors that needs to be considered.
• and investor can have rights over a company even if they are also other companies
that have the rights in that same company. this is when we will consider the
significance of the right.
• only substantive rights are considered not protective rights
SUBSTANTIVE RIGHTS
• a substantive right is a right that is exercisable when decisions about a direction of a
company are made.
• The investor must have the practical ability to exercise that right
• in short this is the right that we're able to use and we can exercise that right because
it's pointless to have a right that you can use but still you don't have the ability to use
that's right.
, PROTECTIVE RIGHTS
• These are rights that are given to the investor to protect the interest of the investor
without giving the investor power over the entity to which those rights relates to.
• Protective rights are rights that protect the investor but does not give the investor
power over they investee.
• for an example an investor may have the right to seize the assets of investing in case
the investee default.
2.RETURNS
• And investor is exposed to or has the rights to variable returns from its involvement
with the investee.
• only one investor can control the investee but they are many investors that can have
a share on the investees returns.
3.LINK BETWEEN POWER AND RETURNS.
• Besides having the power over the investee you must also have the ability to influence
the returns of the investee due to your involvement.
• End investor must determine whether it is acting as an agent or as a principal.
• if you are acting as an agent you do not control the investee.
4. ASSESSING CONTROL
• In terms of IFRS-10 there is a detailed guide on the factors that need to be considered
when we are trying to assess control.
• And investor shall consider this in order to identify control:
o the relevant activities
o how the decisions about relevant activities are made
o who has the current ability to direct those activities, and
o who receives returns from those activities.
