ACCA SBR ^UK Syllabus C. Reporting The Financial Performance Of A Range Of Entities - Definition of control - Notes ^{20 / 24}

The FRS 102 definition of control is linked to the power to govern the financial and operating policies of the investee. IFRS 10 is slightly wider in its definition:

Control:

The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Control is presumed where the parent acquires more than 50% of the other entity's voting rights, unless it can be demonstrated otherwise. (FRS 102 Section 19)

Special purpose entities

A special purpose entity (SPE) is an entity created for a narrow objective. FRS 102 sets out a number of factors to take into account in determining whether a parent has control of an SPE.

• (a) The activities of the SPE are being conducted on behalf of the entity according to its specific business needs.

• (b) The entity has the ultimate decision-making powers over the activities of the SPE even if the day-to-day decisions have been delegated.

• (c) The entity has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incidental to the activities of the SPE.

• (d) The entity retains the majority of the residual or ownership risks related to the SPE or its assets.

FRS 102 clarifies that employee share ownership plans and similar arrangements are special purpose entities.

Note

In IFRS 10 the concept of special purpose entities is dealt with by applying the standard's definition of control.