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Conceptual Framework Phase D — Reporting Entity

Date recorded:

This discussion focussed on the meaning of control of another entity, including whether it should be defined at a standard or concepts level. Staff proposed that control be defined as follows:

Control of an entity is the ability to direct the strategic financial and operating policies of an entity so as to access benefits flowing from the entity and increase, maintain or protect the amount of those benefits.

The Board agreed with the staff proposals that:

  • control, in the context of control of another entity, should be defined at the concepts level;
  • the definition of control should contain both a power element and a benefits element, together with a link between the two, along the lines set out in the working definition (given above); and
  • the conceptual framework should explain that determining whether one entity has control over another entity involves an assessment of all the facts and circumstances.

There was a general discussion about common control transactions and entities. Staff clarified that this would be discussed at a later stage. The purpose of this discussion was to consider the very simplified question of whether entity A controls entity B.

With regard to power element of control, staff asked the Board whether:

  • power relates to the entity's financing and operating policies;
  • power is non-shared;
  • the ability to direct the financing and operating policies of the other entity is sufficient; hence, in concept, control is broader than legal control, in particular, it includes de facto or effective control; and
  • one entity has control over another should be based upon an assessment of the present facts and circumstances, and therefore the control concept should not exclude situations in which control might be temporary.

There was general agreement by the Board with the above, with certain caveats. In particular, the Board were concerned with how latent control fits into this model.

There was general agreement by the Board that with regard to the benefits element of control:

  • the control definition should refer broadly to benefits or economic benefits, rather than specific types of benefits; and
  • leaving aside the issue of SPEs, the control definition should not specify a minimum level of benefits.


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