IASB October 2009

The Board continued its deliberations of the proposals in ED 10 Consolidated Financial Statements considering comments and information received from respondents to the exposure draft and from participants at the round table meetings held in June 2009.

The Board decided tentatively:

• to clarify that 'the activities' in the control definition are those activities of an entity that significantly affect the returns.
• to retain a broad definition and description of returns, similar to the description included in paragraphs 10 and 11 of ED10.
• to clarify the following regarding the returns element of the control definition:
• a reporting entity must be exposed to variability of returns in the future
• a reporting entity's returns can have the potential to be wholly positive, wholly negative or either positive or negative.
• to clarify the characteristics of power as follows:
• power refers to a reporting entity's current ability to enforce its will in directing the activities of an entity that significantly affect the returns
• power need not be exercised (this will be readdressed when the Board discusses power with less than half of the voting rights at a future Board meeting)
• power need not be absolute
• power is assessed on the basis of current facts and circumstances.
• that the final standard should include guidance discussing participating rights as follows:
• participating rights are rights that, if held by one party, are sufficient to give that party the ability to enforce its will in directing the activities of an entity that significantly affect the returns. If their exercise requires agreement by more than one party, participating rights prevent other parties from controlling the entity to which they relate.
• participating rights must be substantive.
• rights that are exercisable only when specified circumstances arise or events happen are participating rights in some circumstances and protective rights in others. The final standard will explain those circumstances. to retain the guidance on protective rights included in paragraphs B1 and B2 of ED10.
• that when two or more parties have discrete, unilateral decision-making authority over different activities of an entity, the party that has the ability to direct the activities that most significantly affect the returns meets the power element of the control definition.
• to clarify that understanding the purpose and design of an entity is an important factor to consider when assessing control of that entity, but that involvement in the design of an entity is not, in isolation, sufficient to conclude that the reporting entity controls that entity.
• that a reporting entity be required to assess control continuously and that the final standard should clarify the application of that requirement.

Agency relationships

The Board discussed when a party that has been delegated decision-making authority should be considered to be an agent. The Board did not reach any decisions on agency relationships.

This topic will be discussed further by the IASB and FASB at the joint meeting being held on 26-28 October. In November 2009, the Board will continue to deliberate the proposals in the exposure draft.