[Accounting Question] Please help!?

Question

Discuss the difference between control and ownership in terms of the definition of an asset?

I'm in Australia, btw. But I don't think it's relevant for this question, is it?

Answer 1

Tax example: - the stock of a company might be in the wife's name (ownership), but the husband is the one making the financial decisions from day to day (control). An important facet of this in business is Federal Aquisition Regulations. The government has set asides for companies that are Indian, Women-Owned, Minority, etc. However, many times these companies are set up by larger corporations as "fronts" and they are funding and running the operations. To qualify it must be 51% owned and controlled. In those cases, an auditor would ask simple questions about the involvement of the owners and managers. Who can fire who? Who contributed the money? etc.

Answer 2

Since this is an accounting question my immediate thoughts are those of a subsidiary and parent company.

In the context of IAS 27 (Consolidated and Separate Financial Statements) para 13,
Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists when the parent owns half or less of the voting power of an entity when there is:
(a) power over more than half of the voting rights by virtue of an agreement with other investors;
(b) power to govern the financial and operating policies of the entity under a statute or an agreement;
(c) power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body; or
(d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.

Usually you don't consider an investee your subsid unless you own more than half of its share cap, but what this IAS is saying is that if you own less than half of the share cap but you can demonstrate that you control the investee (as explained above), you should account for it as a subsid.

Answer 3

possesion is nine tenths of the law, if your in the u.k. that is, if you,r in the u.s. it might be completely different