DipIFR Syllabus D. Preparation of external financial reports - Definition of a subsidiary - Notes ^{1 / 14}

"An entity that is controlled by another entity"

Criteria for Control

A parent (investor) only has control if it has all the following:

1. Power to direct the relevant activities

   Eg.

   Voting rights

   Rights to appoint/remove key management

   Decision-making rights via a management contract

2. Exposure, or rights, to the variable returns

   Eg.

   Dividends

   Interest

   Changes in value of investment

3. The ability to use its power to affect the amount of the investor's returns

   An investor (the parent) only needs the current ability to direct the activities NOT necessarily directing them actively

If a parent controls one subsidiary, which in turn controls another. ...

The parent then controls both subsidiaries