Control is often discussed as though it begins and ends with ownership percentages.
Buy more than half the shares and you control the company. Sell enough shares and control disappears.
Real corporate structures are rarely that simple.
An investor can hold exactly the same percentage of shares before and after a transaction yet find that its accounting conclusion needs to change. The reason is that IFRS 10 does not define control purely by ownership.
Control depends on power, exposure to variable returns and the ability to use that power to affect those returns.
If the rights around an investee change, the control assessment may need to change too.
That issue has moved back into focus during 2026 as the IFRS Interpretations Committee has considered a situation in which an investee’s governing document is amended even though the investor’s ownership interest does not change.
For candidates preparing for SBR ACCA, it is an excellent reminder that consolidation is fundamentally about substance and decision-making rights rather than simply counting shares.
Candidates developing this type of analysis with an ACCA SBR tutor should therefore be comfortable asking who actually directs the activities that matter, not merely who owns the largest percentage.
The starting point is the three elements of control
Under IFRS 10, an investor controls an investee when three elements are present.
The investor has power over the investee.
It has exposure, or rights, to variable returns from its involvement.
It also has the ability to use its power to affect those returns.
All three matter.
An investor might own a large financial interest and receive substantial returns but lack the power to direct the activities that significantly affect those returns.
Another investor might hold less than 50 per cent of the voting rights but still have practical power because the remaining shareholders are widely dispersed and do not act together.
This is why consolidation cannot be determined mechanically from a percentage.
The ownership figure is evidence.
It is not always the conclusion.
Relevant activities sit at the centre of the assessment
To understand power, you first need to identify the relevant activities.
These are the activities that significantly affect the investee’s returns.
In a normal operating company, relevant activities might include approving budgets, setting commercial strategy, managing major assets, choosing suppliers or making investment decisions.
In a more specialised entity, the relevant activity might be much narrower.
A structured investment vehicle could be largely predetermined until a particular event occurs.
A property entity might exist primarily to manage and eventually dispose of one asset.
A financing vehicle may have few meaningful decisions once contracts are in place.
The important point is that power relates to the decisions that actually drive returns.
Owning voting rights that affect trivial matters does not necessarily create control.
Conversely, rights over one critical activity may be extremely important.
Governing documents can alter who holds power
This is where the current IFRS 10 discussion becomes interesting.
Imagine an investor helped establish an investee.
At inception, the shareholders’ agreement and other governing documents gave that investor the ability to direct the relevant activities.
The investor therefore concluded that it controlled the investee and consolidated it.
Several years later, nobody buys or sells shares.
The ownership percentages remain identical.
However, the governing document is amended.
Perhaps another party now has approval rights over the operating budget.
Perhaps major strategic decisions now require agreement from two investors.
Perhaps the board appointment mechanism changes.
Perhaps certain activities previously controlled by one investor can now be directed by another party.
Economically, the decision-making structure has changed.
That can be enough to require a new control assessment.
IFRS 10 already requires reassessment when circumstances change
This is not a proposed replacement for IFRS 10.
The current discussion is about how the existing requirements apply.
IFRS 10 requires an investor to reassess whether it controls an investee when facts and circumstances indicate that there are changes to one or more elements of control.
That wording is important.
The trigger is not simply a share transaction.
It is a change in the facts and circumstances relevant to power, returns or the link between them.
An amendment to the governing document may be exactly that kind of change.
If the document alters the investee’s relevant activities or changes the rights held by different parties, the investor should reconsider whether its previous conclusion remains valid.
The answer after reassessment may still be the same.
Reassessment does not automatically mean loss of control.
It means the old conclusion cannot simply be carried forward without considering the new facts.
The original purpose and design still matter
IFRS 10 requires investors to understand the purpose and design of an investee when assessing control.
This can be particularly important where voting rights do not tell the whole story.
Why was the entity created?
Which activities were predetermined?
Which decisions genuinely affect returns?
Who was given the rights to make those decisions?
Those questions help explain why the original investor may have controlled the entity.
However, the purpose and design at inception cannot freeze the accounting forever.
A structure that gave one party power five years ago may operate differently after its constitutional arrangements are amended.
The investor must therefore consider both the original design and what has changed since.
That is a valuable exam point.
Historic control does not prove current control.
Protective rights do not normally create power
Another area candidates need to distinguish carefully is the difference between substantive rights and protective rights.
Protective rights are designed to protect the interests of their holder without giving that party power over the investee.
A lender may have the right to approve unusually large borrowings.
A minority shareholder may be able to block fundamental changes to the company’s constitution.
An investor may have consent rights over the sale of substantially all the business.
These rights can be important without giving their holder the current ability to direct relevant activities.
The distinction becomes more difficult when governing documents change.
If another party receives new approval rights, management cannot simply label them protective.
It must examine what decisions those rights cover.
If consent is required for ordinary decisions that significantly affect returns, the rights may influence the control assessment.
The substance matters more than the label used in the agreement.
Joint decision-making can destroy unilateral control
Consider a straightforward example.
Company A owns 60 per cent of an investee and Company B owns 40 per cent.
Initially, Company A can appoint the majority of directors and approve the annual operating plan.
Company A therefore controls the investee.
Later, the shareholders amend the agreement so that the operating plan, major capital expenditure and key commercial decisions require approval from both A and B.
No shares change hands.
Company A still owns 60 per cent.
But the rights governing relevant activities have changed substantially.
Company A may no longer have unilateral power.
Depending on the precise terms, the arrangement may now involve joint control or another accounting conclusion.
The important lesson is that 60 per cent did not magically stop being 60 per cent.
What changed was what those shares and contractual rights allowed Company A to do.
Board appointment rights can matter enormously
Board composition is another obvious area.
Suppose an investor controls an entity because it can appoint four of seven directors.
The articles are amended and the investor can now appoint only three.
Another shareholder receives the right to appoint three, while the final director must be independently agreed.
The economic exposure of the original investor may not have changed at all.
Its dividend entitlement may be identical.
Its shareholding may be identical.
Yet its ability to direct the board may have changed significantly.
Management would need to identify which decisions are actually taken by the board, whether the appointment rights are substantive and whether any other arrangements give one party practical power.
Again, the reassessment starts with decision-making, not the ownership percentage.
Changes to relevant activities can matter even if rights look similar
Sometimes the rights do not change much, but the activities that matter do.
Imagine a company established to develop a new technology.
During development, technical and funding decisions are the activities that drive returns.
One investor has the rights to direct those activities and therefore controls the company.
Once development finishes, the company’s success may depend mainly on manufacturing, pricing and distribution.
If another party directs those activities, the activities most relevant to returns may have changed.
The control assessment may therefore need reconsideration.
This is why candidates should avoid treating relevant activities as a permanent list written when an entity was established.
What drives returns can change as the business evolves.
Control reassessment is not the same as automatically deconsolidating
A change in facts should trigger analysis.
It should not trigger a predetermined answer.
The investor might reassess the arrangement and conclude that it still controls the entity.
For example, new rights granted to another shareholder may be protective rather than substantive.
A change in board composition may still leave the investor with practical power.
The amended agreement may alter some decisions without affecting the activities that significantly drive returns.
That is why a professional answer should avoid jumping from “the agreement changed” to “the subsidiary must be deconsolidated”.
The correct sequence is to reassess the three elements of control using the amended facts.
Then reach a conclusion.
Losing control has major accounting consequences
If the reassessment does show that control has been lost, the accounting effect can be substantial.
The former parent no longer consolidates the subsidiary.
The assets and liabilities of the former subsidiary are removed from the consolidated financial statements.
Any non-controlling interest is derecognised.
Consideration received and any retained investment are reflected in determining the resulting gain or loss.
The retained interest may then fall within another accounting model, depending on the rights that remain.
The investor might have significant influence and account for the interest as an associate.
It might have joint control.
Alternatively, the remaining interest might be accounted for as a financial asset.
This is why control reassessment cannot be treated as a legal housekeeping exercise.
A change to governance documents can ultimately alter the entire accounting presentation of an investment.
Consolidation decisions need governance around them
Boards should understand this risk.
Changes to shareholder agreements, constitutions and decision-making rights are sometimes negotiated primarily by legal or commercial teams.
The accounting implications may receive attention only afterwards.
That is dangerous.
A proposed amendment should be reviewed by finance before it takes effect.
A useful control process would consider:
- whether the relevant activities have changed
- whether decision-making rights have changed
- whether rights are substantive or merely protective
- whether another party now participates in directing relevant activities
- whether the investor’s exposure to returns has changed
- whether the investor can still use its power to affect those returns
This is the only bullet list needed here.
The key point is that legal drafting and accounting conclusions cannot be considered separately when the contract determines who has power.
Management bias can enter the control assessment
Control can also be commercially sensitive.
Consolidation may affect reported revenue, debt, profit, gearing and performance measures.
Management may therefore prefer a particular outcome.
A heavily indebted subsidiary might make group leverage appear worse.
A profitable business might make consolidated revenue and earnings look stronger.
These incentives do not determine the accounting.
They do mean the judgement deserves challenge.
The finance team should document why rights are substantive, which activities are relevant and why one investor has the current ability to direct them.
The audit committee should understand significant changes to that analysis.
An assertion that “nothing changed because we still own the same number of shares” is not sufficient.
How this could appear in SBR
Imagine a group owns 55 per cent of an investee.
The remaining 45 per cent is held by another shareholder.
Historically, the group appointed most of the directors and independently approved operating and financing decisions.
During the year, the shareholders amend the governing agreement.
Major operating decisions now require approval from representatives of both investors.
Management argues that consolidation should continue because the group still owns 55 per cent.
A weak answer would focus only on the ownership percentage.
A stronger answer would explain that control requires power, exposure to variable returns and the ability to use power to affect those returns.
The amendment represents a change in facts and circumstances and therefore requires control to be reassessed.
The candidate would identify the relevant activities and determine whether the new joint approval rights are substantive.
Only then should the answer conclude whether the group still controls the investee.
That is the reasoning the examiner wants to see.
Current issues questions need careful wording
Candidates should also be precise about the status of the 2026 discussion.
The Interpretations Committee has been considering whether an amendment to an investee’s governing document requires reassessment under the existing IFRS 10 requirements.
The issue does not mean IFRS 10 has suddenly been rewritten.
The useful current issue is the application of the existing control model.
That distinction is important.
Do not write that a new accounting rule now says governing documents trigger loss of control.
Instead, explain that changes to governing documents can alter facts and circumstances relevant to the control assessment, requiring management to reconsider its existing conclusion.
That is both more accurate and more useful.
This is really a lesson about substance
The broader accounting lesson is simple.
Ownership is visible.
Power can be less visible.
A shareholder register may show exactly the same percentages from one year to the next while the commercial relationship between the parties changes significantly.
Accounting has to capture that substance.
The same principle explains why voting percentages alone do not always establish control and why contractual arrangements can be decisive.
Candidates who rely on numerical shortcuts will struggle with these questions.
Candidates who identify the relevant activities and trace the rights attached to them will usually find the conclusion easier.
What candidates should practise
Do not revise IFRS 10 only through consolidation calculations.
Practise control scenarios.
Take an arrangement and ask who makes the decisions that matter.
Identify whether those rights are current and substantive.
Then consider what would happen if one contractual term changed.
Would control remain?
Would joint control arise?
Would significant influence remain?
What would happen to the accounting if the conclusion changed?
A structured ACCA SBR course should help connect these judgement questions with the accounting consequences rather than treating control as a one-off definition at the beginning of group accounting.
What to do next
Control should never be treated as something determined once and forgotten.
Companies evolve.
Contracts are renegotiated.
Boards change.
Rights move between investors.
Relevant activities can change.
IFRS 10 requires the accounting conclusion to respond when those facts and circumstances change.
That may happen because shares are bought or sold.
It may also happen when not a single share moves.
For SBR candidates, that is the point worth remembering.
Do not ask only who owns the company.
Ask who can direct the activities that determine its returns.
That is where control really sits.
