ED 10 proposes a new definition of control of an entity that would apply to a wide range of situations and be more difficult to evade by special structuring. The proposals also include enhanced disclosure requirements that would enable an investor to assess the extent to which a reporting entity has been involved in setting up special structures and the risks to which these special structures expose the entity. The proposed definition:

A reporting entity controls another entity when the reporting entity has the power to direct the activities of that other entity to generate returns for the reporting entity.

Under IAS 27, the definition is 'power to govern the financial and operating policies'. 'Power to direct the activities' is broader than 'power to govern the financial and operating policies' and, therefore, would broaden the scope of consolidation. For example, under the proposals, a reporting entity could have the power to direct the activities of another entity despite holding less than half of the voting rights.

Click for: IAS Plus Update Newsletter Proposals for a New Standard on Consolidation (PDF 124k).

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