Pl. explain the following terms :?

Question

associate co., subsidiary co., sister concern, co. in which the directors are interested, co. under the same management,

Answer 1

The 1st two terms are covered by GAAPs, the others are layman terms and all 3 fall under the general definition of Related Parties. I'll take them one by one.

Associate: An enterprise in which an investor has significant influence but not control or joint control. Significant influence: Power to participate in the financial and operating policy decisions but not control them. A holding of 20% or more of the voting power (directly or through subsidiaries) will indicate significant influence unless it can be clearly demonstrated otherwise. If the holding is less than 20%, the investor will be presumed not to have significant influence unless such influence can be clearly demonstrated. [IAS 28.6] Pls read IAS 28 for more info.

Subsidiary: An entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent). Control: The power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed when the parent acquires more than half of the voting rights of the enterprise. Even when more than one half of the voting rights is not acquired, control may be evidenced by power: [IAS 27.13]

*over more than one half of the voting rights by virtue of an agreement with other investors; or
*to govern the financial and operating policies of the other enterprise under a statute or an agreement; or
*to appoint or remove the majority of the members of the board of directors; or
*to cast the majority of votes at a meeting of the board of directors.

Related parties:
Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence or joint control over the other party in making financial and operating decisions.

A party is related to an entity if: [IAS 24.9]

(a) directly, or indirectly through one or more intermediaries, the party:
(i) controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);
(ii) has an interest in the entity that gives it significant influence over the entity; or
(iii) has joint control over the entity;
(b) the party is an associate (as defined in IAS 28 Investments in Associates) of the entity;
(c) the party is a joint venture in which the entity is a venturer (see IAS 31 Interests in Joint Ventures);
(d) the party is a member of the key management personnel of the entity or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
(g) the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity.

A sister concern is probably one which shares the same owners as another. A co. in which the directors are interested in could be a co. in which they own some shares or sit on the board. A co. under the same mgt has the same directors. All these are related parties under IAS 24.