高顿财经ACCA研发中心解释ACCA考试科目P2-权力-权利及控制.docx

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Power, rights and control
- Relevant to paper P2
IFRS 10 defined the new concept of control. In order to identify the existence of control, power over the investees should be assessed.
This article addresses on the relationship between power, rights and control.

Power and control
To determine whether it controls an investee an investor shall assess whether it has ALL the following:
(a) power over the investee;
(b) exposure, or rights, to variable returns from its involvement with the investee; AND
(c) the ability to use its power over the investee to affect the amount of the investor’s returns.

Power and rights
Power arises from rights. The rights that may give an investor power can differ between investees.
Examples of rights that, either individually or in combination, can give an investor power include but are not limited to:
¨ rights in the form of voting rights (or potential voting rights) of an investee);
¨ rights to appoint, reassign or remove members of an investee’s key management personnel who have the ability to direct the relevant activities;
¨ rights to appoint or remove another entity that directs the relevant activities;
¨ rights to direct the investee to enter into, or veto any changes to, transactions for the benefit of the investor;
¨ other rights (such as decision-making rights specified in a management contract) that give the holder the ability to direct the relevant activities.

Sometimes assessing power is straightforward, such as when power over an investee is obtained directly and solely from the voting rights granted by equity instruments such as shares, and can be assessed by considering the voting rights from those shareholdings.
In other cases, the assessment will be more complex and require more than one factor to be considered, for example when power results from one or more contractual arrangements.

Only substantive rights and rights that are not protective shall be considered.
For a right to be substantive, the holder must have the practical ability to exercise that right. Determining whether rights are substantive requires judgment, taking into account all facts and circumstances.

Factors to consider in making that determination include but are not limited to:
¨ Whether there are any barriers (economic or otherwise) that prevent the holder (or holders) from exercising the rights.
¨ When the exercise of rights requires the agreement of more than one party, or when the rights are held by more than one party, whether a mechanism is in place that provides those parties with the practical ability to exercise their rights collectively if they choose to do so. The lack of such a mechanism is an indicator that the rights may not be substantive.
¨ Whether the party or parties that hold the rights would benefit from the exercise of those rights

Protective rights relate to fundamental changes to the activities of an investee or apply in exceptional circumstances. Because protective rights are designed to protect the interests of their holder without giving that party power over the investee to which those rights relate, an investor that holds only protective rights cannot have power or prevent another party from having power over an investee.
Examples of protective rights include but are not limited to:
¨ a lender’s right to restrict a borrower from undertaking activities that could significantly change the credit risk of the borrower to the detriment of the lender.
¨ the right of a party holding a non-controlling interest in an investee to approve capital expenditure greater than that required in the ordinary course of business, or to approve the issue of equity or debt instruments.
¨ the right of a lender to seize the assets of a borrower if the borrower fails to meet specified loan repayment conditions.

Rights might have yet to be exercised.
To be substantive, rights also need to be exercisable when decisions about the direction of the relevant activities need to be made. Usually, to be substantive, the rights need to be currently exercisable. However, sometimes rights can be substantive, even though the rights are not currently exercisable.
Therefore, an investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor has power, but such evidence is not, in itself, conclusive in determining whether the investor has power over an investee.

Prepared by Golden ACCA R&D Center
20th February, 2013
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