"The global economic market, characterized by a growing partnership between companies, is leading to an increasing choice of the group as the most effective organizational form for doing business. Thus, the consolidated financial statement is becoming increasingly important, as it is the financial reporting document aimed at the representation of the economical and financial situation of the group as a single entity. . According to the International Financial Reporting Standards (IFRS), a parent company shall present consolidated financial statements in which it consolidates all its investments in subsidiaries. In this context, it’s essential to determine which entities the consolidation area should include: that is to say, it’s essential to understand when the control exists and when consolidation is required.. In May 2011 IASB introduced new requirements on assessing control by issuing IFRS 10 - Consolidated Financial Statements: this new standard replaces IAS 27 (Consolidated and Separate Financial Statements) and SIC-12 (Consolidation - Special Purpose Entities) and applies both to traditional entities and to SPE. IFRS 10 redefines “control” and provides extensive new guidance on applying the new definition.. IFRS 10 does not imply substantial changes to the previous rules: the new control model is based upon concept and principles that already existed in IAS 27 (and in SIC-12 too), but the new standard more fully explains them, also proving more guidance about how to apply them.. According to the new standard, control exists only if the investor has power over the investee, has exposure to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect its returns.. The new control definition provided by IFRS 10 will require management to apply significant judgment in order to decide which entities are controlled and which are not. This is why IFRS 10 seems to be a difficult standard to apply: especially the first-time application will probably imply time and significant efforts for reporting entities.. Furthermore, this new standard introduces - from a theoretical point of view - little but significant changes, that could have – in practice - a deep business impact on reporting entities, affecting a group’s financial and economical results, cash flows and financial position. On the other hand, since accounting requirements are not changing dramatically, is more difficult to isolate effects of the new rules. . The purpose of this paper is to analyze the new control definition provided by IFRS 10, pointing out the main differences between the new standard and the IAS 27 and highlighting the main practical and theoretical implications of this new definition.. "
D'Alessio, L., Francese, U., Talamonti, M.F. (2013). IFRS 10: The New Control Definition. In '15th International Academy of Management and Business (IAMB) Conference Proceedings, Lisbon, April, 2013.
IFRS 10: The New Control Definition
D'ALESSIO, Lidia;FRANCESE, UMBERTO;TALAMONTI, MARIA FRANCESCA
2013-01-01
Abstract
"The global economic market, characterized by a growing partnership between companies, is leading to an increasing choice of the group as the most effective organizational form for doing business. Thus, the consolidated financial statement is becoming increasingly important, as it is the financial reporting document aimed at the representation of the economical and financial situation of the group as a single entity. . According to the International Financial Reporting Standards (IFRS), a parent company shall present consolidated financial statements in which it consolidates all its investments in subsidiaries. In this context, it’s essential to determine which entities the consolidation area should include: that is to say, it’s essential to understand when the control exists and when consolidation is required.. In May 2011 IASB introduced new requirements on assessing control by issuing IFRS 10 - Consolidated Financial Statements: this new standard replaces IAS 27 (Consolidated and Separate Financial Statements) and SIC-12 (Consolidation - Special Purpose Entities) and applies both to traditional entities and to SPE. IFRS 10 redefines “control” and provides extensive new guidance on applying the new definition.. IFRS 10 does not imply substantial changes to the previous rules: the new control model is based upon concept and principles that already existed in IAS 27 (and in SIC-12 too), but the new standard more fully explains them, also proving more guidance about how to apply them.. According to the new standard, control exists only if the investor has power over the investee, has exposure to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect its returns.. The new control definition provided by IFRS 10 will require management to apply significant judgment in order to decide which entities are controlled and which are not. This is why IFRS 10 seems to be a difficult standard to apply: especially the first-time application will probably imply time and significant efforts for reporting entities.. Furthermore, this new standard introduces - from a theoretical point of view - little but significant changes, that could have – in practice - a deep business impact on reporting entities, affecting a group’s financial and economical results, cash flows and financial position. On the other hand, since accounting requirements are not changing dramatically, is more difficult to isolate effects of the new rules. . The purpose of this paper is to analyze the new control definition provided by IFRS 10, pointing out the main differences between the new standard and the IAS 27 and highlighting the main practical and theoretical implications of this new definition.. "I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
