Financial Reporting · Preparation of consolidated financial statements for a simple group

IFRS 10 Control, Subsidiaries and Consolidation Principles

Updated 11 October 2026 · Fact-checked

A parent controls a subsidiary under IFRS 10 when it has power over the investee, exposure to variable returns, and the ability to use that power to affect those returns. The parent then consolidates the subsidiary line by line, as if the group were one entity. Holding over 50% of votes usually indicates control.

Understand Group Structure, Control and Consolidation Principles

A group is a parent and all its subsidiaries. Each company is a separate legal entity. But investors want to see the group as one economic unit. So the parent prepares consolidated financial statements in addition to its own.

The test is control, not just share ownership. Under IFRS 10, an investor controls an investee if it has all three of these:

Power over the investee: existing rights that give the current ability to direct the relevant activities.
Exposure, or rights, to variable returns from its involvement, such as dividends or other benefits.
The ability to use its power to affect the amount of those returns.

Owning more than half of the voting rights normally gives power, so it is the usual indicator. But it is not automatic. Control can exist with less than 50%, for example through contractual rights, rights to appoint the board, or a dominant holding when other shareholders are widely spread. Control can be absent even with over 50%, for example where a regulator or administrator has taken over the investee's decisions.

Control is different from other levels of investment. An associate is an entity over which the investor has significant influence, which is the power to take part in financial and operating decisions without controlling them. IAS 28 governs associates and the equity method. Under IAS 28, holding 20% or more of the voting power presumes significant influence, but the presumption can be rebutted by the facts. Significant influence can also exist below 20%, for example with board representation. An associate is accounted for using the equity method, not line by line. A simple investment with neither control nor significant influence is a financial asset under IFRS 9.

Consolidation means adding 100% of the subsidiary's assets, liabilities, income and expenses to the parent's, line by line. The part not owned by the parent is shown as non-controlling interest (NCI). The parent's investment in the subsidiary and the subsidiary's equity are eliminated, and intra-group balances and transactions are removed. A parent need not present consolidated financial statements if it meets all of these conditions: it is a wholly-owned subsidiary, or a partly-owned subsidiary whose other owners do not object; its debt or equity is not traded in a public market; it is not filing its financial statements with a regulator to issue instruments in a public market; and its ultimate or an intermediate parent produces IFRS consolidated statements available for public use.

Key rules to remember

Control (IFRS 10): Control = Power + Exposure to variable returns + Ability to use power to affect returns; All three elements must be present. Missing one means no control.
Usual indicator of a subsidiary: Voting rights > 50% → normally a subsidiary; A rebuttable indicator, not a rule. Control can exist below 50% or be absent above 50%, depending on the facts.
Usual indicator of an associate: Voting rights of 20% to 50% → significant influence is presumed (IAS 28); The 20% threshold is only a presumption that the facts can rebut. Significant influence can exist below 20% (for example with board representation) and may be absent at 20% or more. It is not control. Use the equity method.
Consolidation treatment: Subsidiary: 100% line by line, with NCI. Associate: equity method. Other investment: IFRS 9 financial asset; Match the accounting treatment to the level of influence.
Reporting date and policies: Same reporting date and uniform accounting policies across the group; Adjust the subsidiary's figures where policies differ.

How to solve Group Structure, Control and Consolidation Principles questions

For any question asking whether and how to consolidate an investee, work through the facts in a fixed order.

1List the shareholding and voting percentage the investor holds in each entity, plus any other facts such as board rights, options or contracts.
2Test for control: does the investor have power, exposure to variable returns, and the ability to use power to affect returns? Check each element against the facts.
3If control exists, classify the entity as a subsidiary and note the acquisition date, since consolidation starts from the date control is gained.
4If there is no control, test for significant influence (usually 20% or more with influence evidence). If present, it is an associate. If not, it is a financial asset.
5Check whether the parent is exempt from preparing consolidated statements, using all the exemption conditions.
6State the accounting treatment: line by line with NCI for a subsidiary, the equity method for an associate, or IFRS 9 for other investments.
7Write your conclusion in one clear sentence and link it to the facts in the question.

Quickest way: Percentage first, then check for traps

When to use it: Use this for objective test questions where you have about three minutes or less per question.

Look at the percentage as a starting presumption only: over 50% suggests subsidiary, 20% to 50% suggests associate (IAS 28 presumption), under 20% suggests investment. None of these is a fixed rule. Significant influence can exist below 20% (for example with board representation) and may be absent at 20% or more.
Scan for words that change the answer: 'board appointed by', 'option to buy', 'unable to direct', 'administrator', 'joint decision'.
If a trap word appears, apply the three control elements to the facts and override the percentage if needed.
Pick the option that names both the correct classification and the correct treatment.

Common mistakes in Group Structure, Control and Consolidation Principles

Deciding control from the percentage alone.
The 50% rule is taught first and feels like a hard rule.
Fix: Treat it as an indicator. Always check power, returns and the link between them against the other facts given.
Treating the 20% and 50% thresholds as fixed rules.
The percentages are easy to memorise and look like cut-offs.
Fix: They are presumptions. Under IAS 28 the 20% presumption can be rebutted, and significant influence can exist below 20% (for example with board representation). Check the facts.
Treating a 30% holding as a subsidiary because the investor is the largest shareholder.
Students confuse large with controlling.
Fix: Control at 30% needs extra evidence, such as the right to appoint the board or contractual power. Without it, test for significant influence and use the equity method.
Consolidating only the parent's share of the subsidiary's assets.
Students mix up the subsidiary treatment with proportionate treatment.
Fix: Include 100% of assets and liabilities, then show the outside shareholders' share as non-controlling interest.
Forgetting the exemption conditions or stating only one.
Students remember the headline idea of a parent being owned by another parent.
Fix: Remember that all conditions must be met: it is wholly-owned or its other owners do not object, its debt or equity is not publicly traded, it is not filing with a regulator to issue instruments in a public market, and a higher parent produces IFRS consolidated statements for public use.
Excluding a subsidiary because its activities differ from the rest of the group.
Older rules allowed this, and it feels sensible.
Fix: IFRS 10 has no such exclusion. A controlled entity is consolidated regardless of its business.
Including a subsidiary for the whole year when control was gained part-way through.
Students overlook the acquisition date.
Fix: Consolidate income and expenses only from the date control is obtained.

Worked examples

Example 1

Alpha holds 60% of the voting shares of Beta. Alpha also holds 25% of the voting shares of Gamma and can appoint one of Gamma's seven directors. Alpha holds 5% of Delta, with no board role. State how each investment is classified and accounted for in Alpha's consolidated financial statements.

Show the solution

Beta: Alpha holds over 50% of the votes, which normally gives power. Alpha is exposed to Beta's returns and can use its power to affect them. No facts rebut control.
So Beta is a subsidiary. Alpha consolidates 100% of Beta's assets, liabilities, income and expenses line by line and shows a 40% non-controlling interest.
Gamma: 25% is within the 20% to 50% range, so IAS 28 presumes significant influence. The board seat supports this, because IAS 28 lists board representation, participation in policy-making and material transactions as indicators of significant influence. One of seven directors does not give power to direct the activities, so there is no control.
Alpha has significant influence under IAS 28, so Gamma is an associate, accounted for using the equity method.
Delta: 5% is below the 20% presumption, and the facts give no board role, no participation in policy-making and no other evidence of influence. So there is neither control nor significant influence. It is a financial asset under IFRS 9.

Answer: Beta is a subsidiary (consolidated line by line with 40% NCI). Gamma is an associate under IAS 28 (equity method). Delta is a financial asset under IFRS 9, as the facts show no other evidence of influence.

Example 2

Pearl owns 45% of the voting shares of Coral. The remaining 55% is held by 1,100 shareholders, each with under 0.05%, none of whom have ever attended a shareholder meeting. At the last three meetings, Pearl's votes decided every resolution, and Pearl appoints the whole board. Is Coral a subsidiary of Pearl?

Show the solution

Power: Pearl holds 45% and the other holders are widely dispersed and passive. In practice Pearl decides resolutions and appoints the whole board, so it can direct the relevant activities.
Variable returns: as a major shareholder Pearl receives dividends and other returns that vary with Coral's performance.
Link: Pearl uses its board control to affect Coral's decisions and therefore its own returns.
All three elements are met, so control exists even though the holding is below 50%.

Answer: Yes. Coral is a subsidiary of Pearl under IFRS 10 because Pearl has power, variable returns and the ability to use its power, so Pearl consolidates Coral with a 55% non-controlling interest.

Exam tips

In objective tests, read the facts after the percentage. Examiners often add a board right, option or contract that changes the answer.
When asked to explain control, name all three elements and tie each to a fact in the scenario. Marks go for application, not recitation.
Remember the exemption conditions as a list. A written question may ask which conditions must be satisfied.
Write the classification first (subsidiary, associate or investment), then the treatment. This gives easy marks even if later workings go wrong.
In Section C, state the acquisition date clearly. It decides which results and reserves are consolidated.

Practice questions from Preparation of consolidated financial statements for a simple group

Group Structure, Control and Consolidation Principles in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Group Structure, Control and Consolidation Principles: frequently asked questions

What is the IFRS 10 definition of control?

An investor controls an investee when it has power over the investee, exposure or rights to variable returns from its involvement, and the ability to use its power to affect those returns. All three must be present. If any one is missing, there is no control.

What is the difference between a subsidiary and an associate?

A subsidiary is controlled by the parent and is consolidated line by line, with non-controlling interest shown. An associate is one where the investor has significant influence but not control, and it is accounted for using the equity method under IAS 28.

Can you control a company with less than 50% of the votes?

Yes. Control can arise from contractual rights, the right to appoint the board, or a large holding when other shareholders are widely spread and passive. You must show the three control elements from the facts given.

Does every parent have to prepare consolidated financial statements?

No. A parent need not present consolidated statements if it meets all of these conditions: it is wholly-owned, or partly-owned with other owners who do not object; its debt or equity is not traded in a public market; it is not filing its financial statements with a regulator to issue instruments in a public market; and a higher parent produces IFRS consolidated statements for public use. If any condition fails, it must consolidate.