1. Financial Accounting II Lecture 03

2. Relationships Between Companies

3. Control / Influence One company may have control / influence over the other due to: A business relationship. One company holding shares in the other company.

4. Related Party Transactions In case of transactions with related parties certain information has to be disclosed in financial statements. A related party can be: An Associate, or A Subsidiary

5. Associated Companies

6. Associated Companies Companies Ordinance 1984 Any two or more companies or undertakings or a company and an undertaking would be associated with each other if one of the following conditions is satisfied A single person is owner, partner or director of both organizations. Or A single person owns 10% or more share holding in both organizations If both companies or enterprises are under common Management or control or if one is a subsidiary of other

7. Associated Companies International Accounting Standard (IAS) 28 An enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor.

8. Significant Influence: Is the ability to participate but not to control the financial and management affairs of the enterprise.

9. International Accounting Standard (IAS) 28 Existence of significant influence is usually evidenced in one or more of the following ways: Representation on the board of directors or equivalent governing body of the investee; Participation in policy making processes;

10. International Accounting Standard (IAS) 28 Material transactions between the investor and the investee; Interchange of managerial personnel; or Provision of essential technical information.

11. Associated Undertakings 10% Share holding Nomination on Board of Directors Common Directors Significant Influence Policy Making Personnel

12. Associated Companies 10% - 49 % Share holding Subsidiary Companies 50% and above Share holding

13. Subsidiary Companies

14. Subsidiary Companies Companies Ordinance 1984 A company should be termed as a subsidiary of another company if the other company holds more than 50% of its shares or has the power to appoint more than 50% of its directors.

15. Direct or Indirect Subsidiary A is a subsidiary of B and B is a subsidiary of C

16. Direct or Indirect Subsidiary Subsidiary Subsidiary C B A 50% or more shares 50% or more shares Direct Subsidiary Indirect Subsidiary

17. Direct or Indirect Subsidiary Subsidiary C B A

18. Direct or Indirect Subsidiary DirectDirect Subsidiary Subsidiary C B A Indirect Subsidiary

19. Subsidiary Companies International Accounting Standards (IAS) 27 An enterprise would be the subsidiary of another enterprise if that investor enterprise can control the subsidiary Influence: Control is defined as the ability to govern the financial and operating policies of an enterprise so as to obtain benefits from it.

20. Control Control is defined as the ability to govern the financial and operating policies of an enterprise so as to obtain benefits from it.

21. Types of Subsidiaries Wholly owned 100% Or Partially owned 50% or more