(IFRS) for Small and Medium-sized Entities (SMEs)

IFRS FOR SMES – JULY 2009(c)(d)power to appoint or remove the majority of the members of the board ofdirectors or equivalent governing body and control of the entity is by thatboard or body; orpower to cast the majority of votes at meetings of the board of directors orequivalent governing body and control of the entity is by that board orbody.9.6 Control can also be achieved by having options or convertible instruments thatare currently exercisable or by having an agent with the ability to direct theactivities for the benefit of the controlling entity.9.7 A subsidiary is not excluded from consolidation simply because the investor is aventure capital organisation or similar entity.9.8 A subsidiary is not excluded from consolidation because its business activities aredissimilar to those of the other entities within the consolidation. Relevantinformation is provided by consolidating such subsidiaries and disclosingadditional information in the consolidated financial statements about thedifferent business activities of subsidiaries.9.9 A subsidiary is not excluded from consolidation because it operates in ajurisdiction that imposes restrictions on transferring cash or other assets out ofthe jurisdiction.Special purpose entities9.10 An entity may be created to accomplish a narrow objective (eg to effect a lease,undertake research and development activities or securitise financial assets).Such an SPE may take the form of a corporation, trust, partnership orunincorporated entity. Often, SPEs are created with legal arrangements thatimpose strict requirements over the operations of the SPE.9.11 An entity shall prepare consolidated financial statements that include the entityand any SPEs that are controlled by that entity. In addition to the circumstancesdescribed in paragraph 9.5, the following circumstances may indicate that anentity controls an SPE (this is not an exhaustive list):(a)(b)(c)(d)the activities of the SPE are being conducted on behalf of the entityaccording to its specific business needs.the entity has the ultimate decision-making powers over the activities ofthe SPE even if the day-to-day decisions have been delegated.the entity has rights to obtain the majority of the benefits of the SPE andtherefore may be exposed to risks incidental to the activities of the SPE.the entity retains the majority of the residual or ownership risks related tothe SPE or its assets.9.12 Paragraphs 9.10 and 9.11 do not apply to post-employment benefit plans or otherlong-term employee benefit plans to which Section 28 Employee Benefits applies.44 © IASCF