Date recorded:

The Board discussed a paper considering the characteristics of a fiduciary relationship that indicate that a controlling relationship does not exist, and agreed that the exposure draft on this issue should focus on the impact of those characteristics, rather than being based on a definition of 'fiduciary relationship', as such a definition may not be relevant to all jurisdictions.

The staff recommended, and the Board agreed, that the following observations about the control test should be included in the Exposure Draft:

  • a. An entity need not have unrestricted power to satisfy the power criterion. In particular, restrictions on the entity's decision-making that only have the effect of providing protection to third parties are not inconsistent with the entity having power;
  • b. An entity with the following characteristics does not satisfy the control test:
    • (i) it has power but is explicitly required by agreement or at law to use its power for the benefit of third parties. This requirement prevents the entity acting in its own interests to the detriment of those third parties;
    • (ii) the entity's ability to benefit from the assets over which power is held is limited. In particular, its entitlement must be agreed between itself and the third parties in whose benefit it must act (or entities representing those interests); and
    • (iii) its benefits from the assets over which it has power are, in effect, limited to a fee for services provided.
The Board considered whether an entity that has a dual role (such as fund manager and a direct investment of its own) (a) should have each of its roles assessed separately against the control criterion, or (b) should have all of its relationships with the investee considered in aggregate. The Board agreed that the staff should try to develop a rebuttable presumption that the entity should assess all of its roles in aggregate unless certain criteria are met. The Board acknowledged the difficulty of drafting such criteria (an example would be where historically the entity has used the voting rights arising from its direct interest in a different manner to those arising from its role as fund manager). The staff will endeavour to develop appropriate criteria and bring them to a future meeting for the Board's consideration.

The Board asked staff to consider whether it might be possible to issue authoritative guidance on whether a fund manager that does not have a dual relationship is considered to control an investee in a more timely manner than they expect to complete this project.

At its September meeting the Board will consider a paper on structures of Special Purpose Entities.

The Board agreed that active communication with the FASB on the progress of this project should be maintained. This topic will be discussed at the joint IASB-FASB meeting to be held in October.

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