Home › CA Final › financialreporting › principalagentdetermination › Under Ind AS 110, REPUTATIONAL RISK alone (i.e.,…
Under Ind AS 110, REPUTATIONAL RISK alone (i.e., a sponsor's incentive to step in to protect its name if an investee fails, with no legal/contractual obligation):
AAlways requires consolidation of the at-risk vehicle
BIs sufficient evidence of power and control by itself
CIs NOT an indicator of power in isolation but is one factor among many — it MAY increase the sponsor's incentive to obtain rights that give it power
DIs irrelevant to control assessment under Ind AS 110
Answer & Solution
Correct answer: C. Is NOT an indicator of power in isolation but is one factor among many — it MAY increase the sponsor's incentive to obtain rights that give it power
Para B19 commentary on reputational risk — having reputational risk is not, by itself, an indicator of power. But it is a factor along with other facts (e.g., observed past support to investees, contractual obligations, related-party indicators) and may indicate the sponsor's incentive to obtain power. This rule was developed post-financial-crisis where sponsors of securitisation vehicles bailed them out — the rule prevents consolidation triggered purely by reputational concerns absent any rights or actual support.
Related questions
Under Ind AS 110's de-facto agent assessment, OTHER parties that might act as de-facto ageUnder Ind AS 110, a DEEMED SEPARATE ENTITY ("SILO") is treated as a separate investee for Under Ind AS 110, when one investor has POWER over relevant activities but ANOTHER investoUnder Ind AS 110, a parent and its fellow subsidiary together hold voting rights in an invUnder Ind AS 110, an investee is funded primarily by short-term debt to third parties, secUnder Ind AS 110, an asset manager has wide decision-making authority, market-based 1% AUMUnder Ind AS 110, an asset manager has wide decision-making authority, receives 1% AUM + 2Under Ind AS 110, INVESTEE's KMP being current or previous employees of the INVESTOR is a: