Question 1. A Fundamental Standard, The New Zealand International

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Question 1 A fundamental standard, the New Zealand International Financial Reporting Standard (NZIFRS) 10 - Consolidated Financial Statements, is used by a company for preparing and presenting consolidated financial statements. The core of the IFRS 10 is the principle of control provides the guidance and assessment process on the determination of control owned by the investors (ARSOY, 2016). According to New Zealand Accounting Standards Board (NZASB)’s IFRS 10 (2011), the control principle provides three essential elements (power, returns and the link between power and returns) to determine the level of control over the investee. Therefore, the investor should disclose the financial and non-financial information of the investee in the…show more content…
Hence, the investor B has the power and control of the investee. Turning to other situation, an example with the investor C who holds 48% of voting rights of the investee, however, thousands of shareholders holds the residual voting rights with no arrangement exists between the investor and other shareholders. Therefore, the investor C owns sufficient voting rights and has the control of the investee because the investor satisfies the power criterion and holds the absolute size of voting rights compared with other thousand vote holders. Then, the last two steps are the assessment of variable returns and the ability to influence the returns via using the power. A significant process of the last step is the determination of whether the investor is a principal or an agent (ARSOY, 2016). The investor is a principle when the investor has the power, exposes the variable returns and the returns bring benefit to the investor (BDO, 2013). Conversely, if the returns bring the benefit to others, the investor is an agent (BDO, 2013). All in all, the principle of control is the core of the IFRS 10 and plays a pivotal role in the business combination. In addition, some accounting requirements related to business consolidation are provided in the IFRS 10. Firstly, the parent company should use the uniform accounting policy for the similar transaction in the preparation and presentation of the consolidated financial statements; furthermore, the beginning
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