Continuous reassessment of control

Learning objectives

• Identify the changes in facts that trigger a reassessment of control (one or more of the three elements).L2, L3
• Justify that a breach of a covenant that makes protective rights exercisable requires control to be reassessed.L3

Normative references

• IFRS 10 §8The investor considers all facts and circumstances when assessing whether it controls an investee, and reassesses that conclusion if facts and circumstances indicate that there are changes to one or more of the three elements of control in para. 7 (application guidance: B80 to B85).

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

2 questions

• Delta SA controls Sigma SA. Sigma breaches a covenant with its bank, which makes exercisable certain rights of the bank that are designed to protect its interests as lender (case data). What must Delta SA do about its control of Sigma?L2
• Orme SA controls Tilleul SA. Tilleul's shareholders amend its articles: budget decisions now require the agreement of two directors appointed by another shareholder. Write a short note stating whether Orme must reassess its control, distinguishing case facts, rule and professional judgement, and taking into account the pending question on amendments to a constitutional document.L3