Do IFRS and Indian generally accepted accounting principles (GAAP) look at controlling of businesses differently?
Under Indian GAAP, consolidation is required only if the parent company is listed. It is optional in all other cases. Under IFRS, consolidation is mandatory except in certain limited circumstances. The new exposure draft on consolidation discusses scenarios where consolidation is required even in situations when an entity holds less than 50% ownership but controls the other entity. If by control we mean power to direct the activities of an entity to generate returns for the reporting entity, then perhaps consolidation is not a bad idea. In principle-based accounting standards, we should not go by form but by substance. What will happen to third-party manufacturing or services that many companies have got into? Will IFRS consider them as lease arrangements? IFRS has guidance to determine whether an arrangement is on a lease or not. This is based on the substance of the arrangement and requires an assessment of the terms. Hence, we cannot say that all arrangements will automatically fall
