Defining the boundaries of the reporting entity: consolidation
Purpose of consolidated financial statements
Report financial position, results of operations and cash flows as if all the assets, liabilities and activities were held, incurred and conducted by a single entity with several branches or divisions (adapted from ARB 51)
Based on the concept of completeness => presenting all assets, liabilities and activities that are under control of a single management and governing board
Conclusion: consolidate an entity when it is controlled by another entity
Problem: control is not well defined in financial reporting.