CERTYNEX IFRS ACADEMY

A colleague writes: "Cèdre SA receives dividends that vary with the profit of Lierre SA; it is therefore exposed to variable returns and controls Lierre SA." What is wrong with this reasoning?

It concludes that control exists from one element, exposure to returns, without establishing power or the ability to use that power to affect the returns.

It wrongly holds that two elements out of three are enough: control exists once power and exposure to returns coexist, with no examination of their link.

It adds an essential fourth element, holding the majority of the investee's capital, which the colleague's reasoning has not checked.

It examines the wrong thing: exposure to variable returns is not among the elements to consider when concluding on control.