Need to Know: IFRS 10 - Consolidated Financial ... - BDO Canada

IFRS 10 Consolidated Financial Statements27Special relationships (IFRS 10.B19)In some cases there will be indications of a special relationship between an investor and an investee that suggeststhe investor has more than a passive interest in the investee. This relationship, either by itself or in combinationwith other rights, could result in the investor being judged to have sufficient rights to have power over the investee.Although a special relationship is not necessarily conclusive that the criterion is met, the following are indicators thatthe investor may have power:––The investee’s key management personnel who have the ability to direct the relevant activities are current orprevious employees of the investor––The investee’s operations are dependent on the investor, such as in the following situations:––The investee depends on the investor to fund a significant portion of its operations––The investor guarantees a significant portion of the investee’s obligations––The investee depends on the investor for critical services, technology, supplies or raw materials––The investor controls assets such as licenses or trademarks that are critical to the investee’s operations––The investee depends on the investor for key management personnel, such as when the investor’s personnel havespecialised knowledge of the investee’s operations.––A significant portion of the investee’s activities either involve or are conducted on behalf of the investor(IFRS 10.B19).Exposure to returnHaving a large exposure to variability of returns is an indicator that the investor has power. This is because, thegreater an investor’s exposure, or rights, to variability of returns from its involvement with an investee, the greateris the incentive for the investor to obtain rights sufficient to give it power. However, while a large exposure indicatesthat the investor may have power, the extent of the investor’s exposure on their own is not conclusive (IFRS 10.B20).The same analysis applies in cases where the investor’s exposure, or rights, to returns from its involvement with theinvestee is disproportionately greater than its voting or other similar rights. For example, in some cases an investorthat holds less than half of the voting rights of an investee could be entitled, or exposed, to more than half of thereturns of the investee. This might be the case where an investor has both an equity interest and a substantialholding of debt instruments in an investee (IFRS 10.B19).