Question5 According to AASB 10 / IFRS 10 Consolidated Financial Statements, which of the following factors indicate the existence of control by an investor over an investee? [table]
I. | Possessing existing rights that give the current ability to direct the relevant activities. II. | Shared power in the governance of financial and operating policies of another entity so as to obtain benefits. III. | The power to have significant influence over the operating policies of an entity so as to obtain benefits. IV. | Ownership of more than 50% of the voting rights in the subsidiary.
[/table] I, II and III only II and IV only I and IV only None of the options are correct IV only ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

The question asks which factors indicate the existence of control by an investor over an investee under AASB 10 / IFRS 10. Let's evaluate each option carefully.

Option A: I, II and III only
- I. Possessing existing rights that give the current ability to direct the relevant activities. This is a core element of control under IFRS 10; if you can direct the relevant activities, you effectively have control.
- II. Shared power in the governance of financial and operating policies of another entity so as to obtain benefits. Shared power in itself does not necessarily confer control; it can indicate joint control or shared governance, which is different from sole or overall control. Therefore, including II as a control indicator is incorrect.
- III. The power to have significant influence over the operating policies of an entity so as to obtain benefits. Significant influence is a weaker level of influence (often associated with equity method accounting), not control. Thus, including III as a control indicator is incorrect.
Given that II and III are not indicators of control, this option is inconsistent with IFRS 10 definitions.

Option B: II and IV only
- II, as explained, reflects shared power rather than control, and IV (ownership of more than 50% of voting rights) is typically a strong indicator of control but must be interpreted in context with the other indicators. Selecting II with IV ignores the nuance that shared power alone does not equal control, making this option inaccurate.

Option C: I and IV only
- I is a direct, widely recognized indicator of control: the investor has current ability to direct the relevant activities. This aligns with the core concept of control under IFRS 10.
- IV is also a common control indicator, since owning more than 50% of voting rights usually provides the power to govern financial and operating policies, subject to any potential arrangements that override or limit that power. While not absolute in every situation, IV is a standard control indicator and commonly paired with I.
- The combination of I and IV captures the two strong pathways to control: direct rights to direct activities and majority voting power.

Option D: None of the options are correct
- Given that Option C aligns with IFRS 10 indicators of control (I and IV), declaring none of the options correct contradicts the established understanding of control indicators. Therefore this option is incorrect.

Option E: IV only
- While IV (ownership of more than 50% of voting rights) is a key control indicator, stating it as the sole indicator ignores I, which directly describes the ability to direct the relevant activities, a fundamental control criterion. Therefore this option is incomplete.

In summary, when weighing the IFRS 10 guidance, I (current ability to direct the relevant activities) and IV (ownership of >50% voting rights) together best represent the typical signs of control. The other options either rely on concepts that do not alone establish control (II and III), or omit critical indicators (E), or assert no correct option exists (D).

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