WHY ISAB ISSUED IFRS 10

A single consolidation model:
IFRS 10 introduces a consolidation model that builds upon the requirements and concepts in IAS 27 and SIC-12. The consolidation model in IFRS 10 applies to all investees.
Like IAS 27 and SIC-12, the consolidation model in IFRS 10 is based on control. A reporting entity is required to consolidate an investee when that entity controls the investee. However, IFRS 10 more clearly articulates the principle of control so that it can be applied to all investees. It defines control as consisting of three elements: power, exposure to variable returns, and an investor’s ability to use power to affect its amount of variable returns. The principle of control and its three elements are explained in detail throughout the standard and the application guidance (including the application examples). IAS 27 and SIC-12 did not contain a detailed discussion of the concept of control, nor did they provide application guidance.
Additional application guidance:
IFRS 10 includes application guidance regarding situations in which control is difficult to assess, including situations involving agency relationships, relationships with entities that are designed so that voting rights are not the dominant factor in assessing control (hereafter referred to as ‘structured entities’), potential voting rights and control without a majority of voting rights. As will be explained further in this document, we have learned that our constituents have developed different mechanisms and ‘bright lines’ to deal with the assessment of control in those situations and that those guidelines can differ between entities and across jurisdictions. We think that the requirements and guidance in IFRS 10 will lead to more consistent accounting in those situations by detailing what a reporting entity must consider in assessing control. This should reduce the need for individual constituents, such as preparers or accounting firms, to develop their own guidance on the assessment of control. This should also improve consistency and comparability in financial reporting.