What is de facto control and when must I consolidate below 50%?

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AcadiFi · Accepted Answer

De facto control under IFRS 10 arises when an investor with less than majority voting rights has practical ability to direct relevant activities because other votes are dispersed, unorganized, or passive. The assessment is principle-based and looks at: (1) the size of the investor's holding relative to the size and dispersion of other holdings; (2) potential voting rights; (3) other contractual arrangements; (4) voting patterns at recent shareholder meetings. For Cordelia with 38% versus 3,400 dispersed retail shareholders, the analysis strongly suggests de facto control. Retail investors rarely attend meetings or coordinate — typical turnout might be 20% of the retail 62%, meaning Cordelia's 38% dominates actual votes cast. If shareholder meeting records show Cordelia's nominees winning board seats with comfortable margins and no contested votes in the past three years, control is established. Cordelia must consolidate Aurum from the date control is assessed to exist. The 62% not owned by Cordelia becomes NCI on the balance sheet, and 62% of net income is attributed to NCI on the income statement. Three adjustments analysts make when comparing Cordelia to peers: (1) back out NCI-related net income when computing parent EPS — already standard; (2) watch for off-balance-sheet debt at the Aurum level — now fully on Cordelia's balance sheet; (3) reassess leverage and coverage ratios using consolidated numbers. De facto control reversals can happen if a new activist accumulates 15%, potentially forcing deconsolidation.

What is de facto control and when must I consolidate below 50%?

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