Using A Bipolar Consolidation Model - 1487 Words

Control IFRS 10 An investor determines whether it is a parent by assessing whether it controls one or more investees. An investor considers all relevant facts and circumstances when assessing whether it controls an investee. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. [IFRS 10:5-6; IFRS 10:8]. Power arises from rights e.g. voting rights or those rooted in contractual arrangements. An investor that holds only protective rights cannot have power over an investee (IFRS 10:11, IFRS 10:14). U.S GAAP ASC 810-10 Uses a bipolar consolidation model. All consolidation decisions are†¦show more content†¦Under this model a reporting entity has a controlling financial interest in VIE if it has power to direct the activities of the VIE’s economic performance or the rights to receive profits or obligation to absorb losses that could be significant to the VIE. 2. Voting interest model-Here controlling financial interest usually exists if a reporting entity has majority voting interest in the other entity. Here the basis for consolidation focuses on control, irrespective of the form of investee. An investor has control over investee when it has rights to variable returns from its involvement with investee and has the ability to affect those returns through its power over the investee. Two firms planning to consolidate their operations must both use one of the two accounting standards i.e. either U.S.GAAP or IFRS in the execution of consolidation. B) The concept of effective control exists in relation with contracts. B) Here the concept of de facto control is recognized by the existence of situations in which a parent company may have control over another entity despite; (a) holding less than 50% voting interest and (b) lacking legal and/or contractual rights to control voting power. An attempt to consolidate two firm using the different standards will lead to several misunderstandings and difficulties to CPAs and other stakeholders Valuation of Non-controlling interest Under US GAAP Under ASC 810, the