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Commission Regulation
(EC) No 2238/2004 of 29 December 2004 amending
Regulation (EC) No 1725/2003 adopting certain
international accounting standards in accordance with
Regulation (EC) No 1606/2002 of the European Parliament
and of the Council, as regards IASs IFRS 1, IASs Nos 1
to 10, 12 to 17, 19 to 24, 27 to 38, 40 and 41 and SIC
Nos 1 to 7, 11 to 14, 18 to 27 and 30 to 33
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Significant
Influence
6. If an investor
holds, directly or indirectly (eg through subsidiaries), 20
per cent or more of the voting power of the investee, it is
presumed that the investor has significant influence, unless
it can be clearly demonstrated that this is not the case.
Conversely, if the investor holds, directly or indirectly (eg
through subsidiaries), less than 20 per cent of the voting
power of the investee, it is presumed that the investor does
not have significant influence, unless such influence can be
clearly demonstrated. A substantial or majority ownership by
another investor does not necessarily preclude an investor
from having significant influence.
7. The existence of
significant influence by an investor is usually evidenced in
one or more of the following ways:
(a) representation
on the board of directors or equivalent governing body of the
investee;
(b) participation in
policy-making processes, including participation in decisions
about dividends or other distributions;
(c) material
transactions between the investor and the investee;
(d) interchange of
managerial personnel; or
(e) provision of
essential technical information.
8. An entity may own
share warrants, share call options, debt or equity instruments
that are convertible into ordinary shares, or other similar
instruments that have the potential, if exercised or converted,
to give the entity additional voting power or reduce another
party’s voting power over the financial and operating
policies of another entity (ie potential voting rights). The
existence and effect of potential voting rights that are
currently exercisable or convertible, including potential
voting rights held by other entities, are considered when
assessing whether an entity has significant influence.
Potential voting rights are not currently exercisable or
convertible when, for example, they cannot be exercised or
converted until a future date or until the occurrence of a
future event.
9. In assessing
whether potential voting rights contribute to significant
influence, the entity examines all facts and circumstances (including
the terms of exercise of the potential voting rights and any
other contractual arrangements whether considered individually
or in combination) that affect potential rights, except the
intention of management and the financial ability to exercise
or convert.
10. An entity loses
significant influence over an investee when it loses the power
to participate in the financial and operating policy decisions
of that investee. The loss of significant influence can occur
with or without a change in absolute or relative ownership
levels. It could occur, for example, when an associate becomes
subject to the control of a government, court, administrator
or regulator. It could also occur as a result of a contractual
agreement.
Equity Method
11. Under the equity
method, the investment in an associate is initially recognised
at cost and the carrying amount is increased or decreased to
recognise the investor’s share of the profit or loss of the
investee after the date of acquisition. The investor’s share
of the profit or loss of the investee is recognised in the
investor’s profit or loss. Distributions received from an
investee reduce the carrying amount of the investment.
Adjustments to the carrying amount may also be necessary for
changes in the investor’s proportionate interest in the
investee arising from changes in the investee’s equity that
have not been recognised in the investee’s profit or loss.
Such changes include those arising from the revaluation of
property, plant and equipment and from foreign exchange
translation differences. The investor’s share of those
changes is recognised directly in equity of the investor.
12. When potential
voting rights exist, the investor’s share of profit or loss
of the investee and of changes in the investee’s equity is
determined on the basis of present ownership interests and
does not reflect the possible exercise or conversion of
potential voting rights.
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