ACCA FR Syllabus A. The Conceptual And Regulatory Framework - Group accounts principles - Notes ^{3 / 10}

Consolidated financial statements
Where assets, liabilities, equity, income, expenses and cash flows of the parent and its subs are presented as those of a single economic entity

Control of an investee
An investor controls an investee when the investor is exposed, or has rights, to the variable returns of the investee

Also it has the ability to affect those returns through its power

Parent
An entity that controls one or more entities

Power
Existing rights that give the current ability to direct the relevant activities

Protective rights
Rights designed to protect rather than control

Relevant activities
Activities of the investee that significantly affect the investee's returns

What is CONTROL exactly?

Firstly as an investor you need to decide if you are a PARENT or not..

This means do you control the investment or not

An investor controls when it is exposed, or has rights, to variable returns from its involvement with the investee (investment) and has the ability to affect those returns through its power eg....

• Existing rights give the ability to direct the relevant activities

• Exposure, or rights, to variable returns from its involvement with the investee

• Ability to use power over the investee to affect the amount of the it's returns

Rights to variable returns

• Through straightforward voting rights

• Can't be just protective rights

• Rights to make decisions over the investment (not on behalf of someone else though)