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SIC-33 — Consolidation and Equity Method – Potential Voting Rights and Allocation of Ownership Interests

References

  • IAS 27 Consolidated and Separate Financial Statements
  • IAS 28 Investments in Associates
  • IAS 39 Financial Instruments: Recognition and Measurement

History

  • SIC D33 was issued 12 September 2001.
  • Final SIC-33 was approved by the IASB in December 2001.
  • Effective Date: Annual financial periods beginning on or after 1 January 2002
  • Superseded by IAS 27 Consolidated and Separate Financial Statements (Revised 2003) and IAS 28 Investments in Associates (Revised 2003), effective for annual periods beginning on or after 1 January 2005.

Summary of SIC-33

An enterprise may own share warrants, share call options, debt, or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the enterprise voting power or reduce another party's voting power over the financial and operating policies of another enterprise (potential voting rights). SIC-33 addresses whether the existence and effect of potential voting rights should be considered, in addition to the factors described in IAS 27.12 and IAS 28.4-.5, when assessing whether an enterprise controls or significantly influences another enterprise according to IAS 27 and IAS 28 respectively.

Under SIC-33, the existence and effect of potential voting rights that are currently exercisable or convertible should be considered, in addition to the factors described in IAS 27.12 and IAS 28.4-.5.

SIC-33 also addresses whether any other facts and circumstances related to potential voting rights should be assessed. It provides that all facts and circumstances that affect potential voting rights should be examined, except the intention of management and the financial capability to exercise or convert.

Further, SIC-33 addresses whether the proportion allocated to the parent and minority interests in preparing consolidated financial statements, and the proportion allocated to an investor that accounts for its investment in an associate using the equity method, should be determined based on present ownership interests or ownership interests that would be held if the potential voting rights were exercised or converted. Under SIC-33, the proportion allocated should be determined based solely on present ownership interests. An enterprise may, in substance, have a present ownership interest when for example, it sells and simultaneously agrees to repurchase, but does not lose control of, access to economic benefits associated with an ownership interest. In this circumstance, under SIC-33 the proportion allocated should be determined taking into account the eventual exercise of potential voting rights and other derivatives that, in substance, presently give access to the economic benefits associated with an ownership interest.

Under SIC-33, when applying the consolidation and the equity method of accounting, instruments containing potential voting rights should be accounted for as part of the investment in a subsidiary and the investment in an associate respectively only when the proportion of ownership interests is allocated by taking into account the eventual exercise of those potential voting rights. In all other circumstances, instruments containing potential voting rights should be accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

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