Control - Joint Control - Significant Influence – FAQ | IFRS

Control – Joint control – Significant influence

This is a discussion on IFRS 10 – IFRS 12 Control, Joint control, Significant influence and the accounting applied. It is added with some other logical IFRS topics: the fair value option and the other investments (no control, no joint control and no significant influence).

ControlControl of an investee Control of an investee

Consolidated subsidiaries – Consolidated structured entities

For an investor to control an investee, the investor must possess all of the following elements:

  • Power over the investee, which is described as having existing rights that give the current ability to direct the activities of the investee that significantly affect the investee’s returns (such activities are referred to as the ‘relevant activities’)
  • Exposure, or rights, to variable returns from its involvement with the investee
  • Ability to use its power over the investee to affect the amount of the investor’s returns (IFRS 10 7)

Accounting: Consolidated at accounting policies defined by the parent, In parent company accounts: Equity method.

Joint control and control are mutually exclusive. At least two parties must be there to have joint control, and this must be a contractually agreed sharing of control requiring unanimous consent.

Joint control

Line-by-line consolidation of Joint operations – Investment in Joint ventures

Joint control is 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 11 7]

In assessing whether an entity has joint control of an arrangement, an entity shall assess first whether all the parties, or a group of the parties, control the arrangement. When all the parties, or a group of the parties, considered collectively, are able to direct the activities that significantly affect the returns of the arrangement (ie the relevant activities), the parties control the arrangement collectively. (IFRS 11 B5 – B8)

An entity shall assess whether it has joint control of the collectively controlled arrangement. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement. Assessing whether the arrangement is jointly controlled by all of its parties or by a group of the parties, or controlled by one of its parties alone, can require judgement.

Sometimes the decision-making process that is agreed upon by the parties in their contractual arrangement implicitly leads to joint control. In other circumstances, the contractual arrangement requires a minimum proportion of the voting rights to make decisions about the relevant activities, as such this will not lead top joint control in a frequent manner.

Accounting: Line-by-line consolidation at accounting policies defined by the parent, in parent company accounts: Equity method.

Joint control and control are mutually exclusive. At least two parties must be there to have joint control, and this must be a contractually agreed sharing of control requiring unanimous consent.

Joint control – difference between joint ventures and joint operations

Classifying a joint arrangement requires an entity to use its judgment to determine whether the entity in question is a joint venture or a joint operation. IFRS 11 requires an analysis of “other facts and circumstances” when determining the classification of jointly controlled entities.

The IFRS Interpretations Committee (IFRS IC) (November 2014) decided that for an entity to be classified as a joint operation, other facts and circumstances must give rise to direct enforceable rights to the assets, and obligations for the liabilities, of the joint arrangement.

Significant influence

Investment in Joint ventures – Investment in Associates – Investment in Structured entities

Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

Significant influence is usually (but not only!!!) acquired by purchasing more than 20% of voting power but less than 50%.

Accounting: Equity method at accounting policies defined by the parent

Fair value option

The fair value option is the alternative for a business to record its financial instruments (not-held-for-trading) at their fair value through other comprehensive income (FVOCI). IFRS allows this treatment for the following items:

  • A financial asset or financial liability
  • A firm commitment that only involves financial instruments
  • A loan commitment
  • An insurance contract where the insurer can pay a third party to provide goods or services in settlement, and where the contract is not a financial instrument (i.e., requires payment in goods or services)
  • A warranty in which the warrantor can pay a third party to provide goods or services in settlement, and where the contract is not a financial instrument (i.e., requires payment in goods or services)

Under this FVOCI category, fair value changes are recognised in OCI while dividends are recognised in profit or loss. On disposal of the investment the cumulative change in fair value must remain in OCI and is not recycled to profit or loss. However, entities have the ability to transfer amounts between reserves within equity (ie between the FVOCI reserve and retained earnings).

No control – No joint control – No significant influence

Other investments

The ownership of less than 20% creates an investment position carried at historic cost or fair value in the owning entity’s balance sheet.

These may comprise investments to receive income in addition to the regular income of the business or investments to secure trade ties with the invested companies

Accounting: Historic cost with dividends recognised in profit or loss or fair value through profit or loss.

Other classes/categories

Non-current assets held for sale

IFRS 5 class of assets and liabilities. Non-current assets and disposal groups are classified as held for sale when:

  • They are available for immediate sale
  • Management is committed to a plan to sell
  • It is unlikely that significant changes to the plan will be made or that the plan will be withdrawn
  • An active programme to locate a buyer has been initiated
  • The asset or disposal group is being marketed at a reasonable price in relation to its fair value, and
  • A sale is expected to complete within 12 months from the date of classification. [IFRS 5 6 – 8]

The expectation for the sale to be completed within one year of the classification as held-for-sale may be extended in certain cases [IFRS 5 9]

Non-current assets and disposal groups classified as held for sale are measured at the lower of:

  • Their carrying amount immediately prior to being classified as held for sale in accordance with the group’s accounting policy; and
  • Fair value less costs of disposal. [IFRS 5 15 – 15A]

Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated. [IFRS 5 25]

Gains in fair value less costs of disposal are only recognised as a reversal of the cumulative amount of impairment losses recognised upon classification as non-current assets for sale. [IFRS 5 20 – 22]. Non-current assets held for sale continue to be remeasured at the lower of its carrying value or fair value less costs of disposal. [IFRS 5 15, IFRS 5 23, IAS 36 122]

Any gain or loss not recognised before the date of sale is recognised on the derecognition of the non-current asset or disposal group. [IFRS 5 24]

Held for trading

A financial asset or financial liability that:

  1. is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;
  2. on initial recognition is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of
    short-term profit-taking; or
  3. is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

Trading generally reflects active and frequent buying and selling, and financial instruments held for trading generally are used with the objective of generating a profit from short-term fluctuations in price or dealer’s margin. [IFRS 9 BA.6]

Accounting: Instruments held for trading are measured at fair value through profit or loss.

Held to maturity

Held-to-maturity financial instruments (IAS 39 category, IFRS 9 class) are instruments held to maturity (Business model held-to-collect). The company intends and is able to hold the financial instruments until maturity in order to collect all contractual cash flows, such as interest and principal.

Accounting: Held-to-maturity financial instruments are valued at amortised costs.

Financial assets available for sale

Up to 2018 IAS 39 prescribed that gains or losses from revaluation of financial assets available for sale were recorded through other comprehensive income in equity, except to the extent that any losses were assessed as being permanent and the asset was therefore impaired (under IAS 39 58), or if the asset was sold or otherwise disposed of. If the asset was impaired, sold or otherwise disposed of, the revaluation gain or loss implicit in the transaction was recognised as in profit or loss.

Starting in 2018, this treatment was overridden by IFRS 9, according to which the revaluation gain or loss is recognised under other comprehensive income whether it be due to normal fair value re-measurement or impairment. Further, the revaluation gains or losses from other comprehensive income will under no circumstances be recycled into profit or loss.


Control – Joint control – Significant influence

Control – Joint control – Significant influence

Control – Joint control – Significant influence Control – Joint control – Significant influence Control – Joint control – Significant influence Control – Joint control – Significant influence Control – Joint control – Significant influence

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