The link between power and returns

Learning objectives

• Explain that control requires the investor to be able to use its power to affect its own returns.L1, L2
• Determine whether the link exists when power and returns are held by different parties.L2

Normative references

• IFRS 10 §17Link between power and returns: the investor controls the investee only if it can use its power to affect the amount of its own returns, and not merely hold power and returns separately.

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

3 questions

• In the analysis of control, what does the link between power and returns mean?L1
• Alpha SA holds all the decision rights over the relevant activities of Delta SA. Delta's variable returns, positive and negative, go to Beta SA, a separate party with no power over Delta, and Alpha receives none of them (case data). Does Alpha control Delta?L2
• Gamma SA holds the power to decide the relevant activities of Zeta SA and owns 12% of its equity; the balance of the returns goes to external investors. Write a short note concluding on whether there is a link between Gamma's power and its own returns, distinguishing case facts, rule and professional judgement.L2