Principal or agent

Learning objectives

• Distinguish a principal from an agent when a decision maker exercises delegated decision-making rights.L2, L3
• Justify that an agent does not control the investee that it manages on behalf of others.L3

Normative references

• IFRS 10 §18An investor with decision-making rights determines whether it is a principal or an agent; an investor that is an agent as described in B58 to B72 does not control the investee when it exercises the decision-making rights delegated to it.
• IFRS 10 §B58A decision maker assessing whether it controls an investee determines whether it is a principal or an agent, and an investor also determines whether another entity with decision-making rights is acting as its agent. An agent, primarily engaged to act on behalf and for the benefit of other parties, does not control the investee when it exercises its decision-making authority (B58 to B72).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• In the analysis of control, what characterises an agent as opposed to a principal?L2
• GestionPlus SA manages the Horizon fund on behalf of and for the benefit of the fund's investors, exercising decision-making rights delegated to it. Case convention: GestionPlus acts as an agent. Must GestionPlus consolidate Horizon?L3
• Among these four statements about a decision maker assessing whether it controls an entity, which one is wrong?L3
• Aurora Gestion exercises decision-making rights delegated to it over a fund. Its remuneration is commensurate with the services provided and the remuneration agreement includes only terms, conditions and amounts customarily present for similar services negotiated on an arm's length basis (case facts). What can be concluded under IFRS 10?L3