iGAAP Alert: May 2011
IASB issues new standard on consolidation
The objective of IFRS 10 is to have a single basis for consolidation for all entities, regardless of the nature of the investee, and that basis is control. IFRS 10 replaces SIC-12 Consolidation – Special Purpose Entities and the consolidation requirements of IAS 27.
Control includes three elements:
- power over an investee
- exposure or rights to variable returns of the investee and
- the ability to use power over the investee to affect the investor’s returns.
Applying the new definition could change existing accounting in some areas, e.g. where an investor has control with less than a majority of voting rights, some fund managers, and entities with potential voting rights. IFRS 10 provides substantial application guidance on how to apply the control principle in various situations.