Company Reporting: Analysis of Consolidation Principles and Control

This report provides an analysis of company reporting, specifically focusing on AASB 10 and IFRS 10, which establish principles for preparing consolidated financial statements when an entity has control over one or more entities. The report discusses how an investor determines control, considering factors like the ability to influence returns and the rights or exposure to variable returns. It emphasizes that control is not solely based on ownership percentage but on the concept of control, requiring accountants to use judgment and other evidence when ownership is below 50%. The report concludes with a case study involving Heckle Ltd and Jeckle Ltd, determining that Heckle Ltd should not consider Jeckle Ltd as a subsidiary due to the lack of control over Jeckle Ltd's operating and financial policies, despite holding 40% of the shares. The report references relevant sources to support its analysis.

Running head: COMPANY REPORTING
Company reporting
Name of the student
Name of the university
Student ID
Author note

1COMPANY REPORTING
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Conclusion and recommendation...............................................................................................3
Reference....................................................................................................................................4

2COMPANY REPORTING
Introduction
The main objective of AASB 10 or IFRS 10 is establishing the principles to present
and prepare the consolidated financial statements while the entity has control on one or more
than one entities. The investor establishes whether it is the parent company or not through
assessing the controls over the investee (Frascanada.ca, 2018). The investor takes in to
consideration all the pertinent circumstances and facts while evaluating that whether it
controls the investee or not. The investor controls the investee while it is exposed or it has the
rights, to variable returns under the involvement with the investee and it is able to influence
those returns through the power it has over the investee.
Discussion
The investor will be considered to have control over the investee only if investor has
all the below mentioned elements –
 Ability to use the power over investee for influencing the amount of the return of
investor
 Rights or exposure to the variable returns from the investor’s involvement with the
investee
 The investor has the power over investee that is the investor has the existing rights
that will enable it to direct relevant activities and the activities will significantly
influence the returns of the investee (Aasb.gov.au, 2018).
However, the power generates from rights and such rights can be of complex nature
that is embedded in the contractual right or can be straightforward that is through the voting
rights. An investor who holds the protective rights only cannot have the power over the
investee and therefore does not have control over the investee (AASB, 2015). Further, an
investor shall have rights or shall be exposed towards variable returns under the involvement
with the investee to have control over it. These returns shall be able to vary the outcome of
investee’s performance and that may be negative, positive or both. Further, the parent must
be able to use the power on the investee for influencing the returns from the involvement with
investee. While assessing the fact that whether the investor has control on the investee, the
decision making rights of the investor determines whether it is acting as the principle or as
the agent for the other party (Maroun & van Zijl, 2016).

3COMPANY REPORTING
Conclusion and recommendation
The criteria for the consolidation are not based on the ownership percentage rather it
is based on control concept. Further, when percentage interest is lower than 50% the
judgements on the existence of the control is required. The accountant has to depend on other
evidences while forming the opinion. Here in the given case, Heckle Ltd has 40% investment
on the shares of Jeckle Ltd and each share I eligible for 1 vote. However, there is no evidence
that Heckle Ltd has control over Jeckle Ltd on its operating and financial policies. Therefore,
only the fact that tere is no other major shareholders block for Jeckle Ltd will not establish
the fact that Heckle Ltd has control over Jeckle Ltd and therefore, Heckle Ltd shall not
consider Jeckle Ltd as the subsidiary while preparing the consolidated financial statement on
30th June 2019.

4COMPANY REPORTING
Reference
AASB, C. A. S. (2015). Investments in Associates and Joint Ventures.
Aasb.gov.au. (2018). [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 3
May 2018].
Frascanada.ca. (2018). [online] Available at: http://www.frascanada.ca/international-
financial-reporting-standards/resources/unaccompanied-ifrss/item71719.pdf
[Accessed 3 May 2018].
Maroun, W., & van Zijl, W. (2016). Isomorphism and resistance in implementing IFRS 10
and IFRS 12. The British Accounting Review, 48(2), 220-239.