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A Standard Setting Perspective on Current Issues Facing the Accounting Profession - page 11 / 29

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Defining the boundaries of the reporting entity: consolidation

Defining control

Approach 1:  Identify instruments that convey control and apply quantitative analysis to determine if a party has enough of the instruments to achieve control

Approach 2:  Apply professional judgment to facts and circumstances, given a qualitative definition of control

Example (from a 1999 FASB Exposure Draft):  Control is the (unshared) ability of an entity to direct the policies and management that guide the ongoing activities of another entity so as to increase its benefits and limit its losses  from that other entity’s activities.  

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