Question 1:

A holds 49.4% of X and has 2 out of 5 directors. B holds 50.6% of X and holds 3 directorships and appoints the chairman. The appointment or dismissal of the Chief Executive Officer, the Chief Financial Officer, the adoption or amendment of the budget or business plan, as well as the decisions of indebtedness, investments, acquisitions or disposals of assets require the agreement of A.

Does B have to consolidate X by full consolidation or by proportionate consolidation under IFRS rules? And A by proportionate consolidation or equity method? (Note : Proportionate Consolidation option and preference has been removed out from IFRS 11, that replaced IAS 31)


Answer to problem 1 by Vernimmen : A does not control X because its needs B to be able to take most important decisions in S. So for both A and B, it is the proportionate integration that is necessary.

Question 2:


Company X is 50% owned by the company P, 25% by the company R and 25% by the company S.
Main decisions are taken by a majority of 70% in X.

Can P, which de facto has a right of veto over X, under IFRS, consolidate its participation according to the method of proportional integration, because it would share the control of X with another shareholder?


Answer to problem 2 by Vernimmen: No, because control sharing is with well-defined partners. But here P can share control with R, or S or R and S, but nothing says that it’s always with the same partner. So P will have to consolidate X by equity method.

Note: The above 2 Questions were taken from The Vernimmen.com Newsletter No. 112 (April 2018) by Pascal Quiry and Yann Le Fur


Question 3:



For A 40%: B 40%: C 20% situation, without combing through the Article of Association or any agreement, implicitly, by requiring 75% vote to agree on key decision related to the strategic, operating and financial activities over the company (Note: need to review the Board of Directors composition  as well), A Company and B Company is sharing  the control over ABC Company. Since ABC Company is a separate vehicle, it might be possible ABC Company is a JV or JO, depending upon:
whether A Company and C Company has rights over the assets and obligations for the liabilities of ABC Company – in this case,  ABC Company is  a JO
whether A Company and C Company has rights over net assets (or net liabilities) of ABC Company – in this case, ABC Company is a JV.
The accounting for A Company to account for its interest in ABC Company:
if ABC Company is a JO, then A Company recognizes the assets, liabilities, revenue, expenses, etc.
if ABC Company is a JV, then A Company will use the equity method
Note: C Company is not the subsidiary or under common control with A Company. If yes, A Company could be controlling ABC Company though it is only owing 40% shareholding interest in ABC Company.