This free, guided checker walks your finance team through the key decision points for IFRS 10 De Facto Agent and Related Party Kick-Out Rights. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Principal-agent analysis applies when an entity directs relevant activities, whether through board appointment, management contract, or contractual veto and consent rights under IFRS 10.B58.
Without decision-making authority the entity cannot be a principal; assess control from the perspective of the party that directs the relevant activities (IFRS 10.B58).
Official guidance: IFRS issued standards
Asset management, trustee, general partner, and service-provider roles often derive authority from contracts that must be weighed against kick-out and removal rights held by other parties.
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Official guidance: IFRS issued standards
IFRS 10.B64-B65 weigh removal (kick-out) rights held by other parties: a single party that can remove the decision maker without cause is, in isolation, sufficient to make the decision maker an agent. The more parties that must act together, and the greater the decision maker's other economic interests, the less weight removal rights carry. Test substance under IFRS 10.B22-B23: penalties, dispersion, or the absence of a mechanism to act collectively undermine the right.
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Official guidance: IFRS issued standards
When removal rights sit with a related party, assess the combined position: IFRS 10.B73-B75 require an investor to consider parties acting on its behalf, and related parties under IAS 24.9 are the first example listed (IFRS 10.B75(a)). A sponsor group that can replace the manager at will may in substance hold the power the manager appears to exercise. Map ownership, common key management, and economic dependencies before weighting the removal right.
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Official guidance: IFRS issued standards
Under IFRS 10.B65, removal rights exercisable by a single party without cause are, in isolation, conclusive that the decision maker is an agent; where multiple parties must agree, the rights are not conclusive and the number of parties needed reduces the weight given to them. Rights held by a related group are evaluated as if held by one party when the group acts in concert (IFRS 10.B73-B75).
A single related party or concerted related group able to remove the decision maker without cause indicates the decision maker acts as agent and does not consolidate (IFRS 10.B65; IFRS 10.18).
Official guidance: IFRS issued standards
IFRS 10.B69 asks whether remuneration is commensurate with the services provided and whether the agreement includes only terms customarily found in arm's length arrangements; failing either condition means the decision maker cannot be an agent (IFRS 10.B70). The greater the magnitude and variability of remuneration relative to the investee's expected returns, the more likely the decision maker is a principal (IFRS 10.B68). Benchmark fixed and performance fees against market data.
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Official guidance: IFRS issued standards
Co-investment, carried interest, subordinated notes, guarantees, and first-loss positions are other interests that expose the decision maker to variability of returns and may support principal status (IFRS 10.B71-B72). Consider the exposure in aggregate with remuneration, and whether it differs in kind from that of other investors. Include interests held through parties acting on the decision maker's behalf identified under IFRS 10.B73-B75.
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Official guidance: IFRS issued standards
IFRS 10.B72 weighs whether the decision maker's exposure to variability of returns - from remuneration and other interests in aggregate - is greater than that of other investors and whether it differs in kind, for example first-loss protection provided to passive investors. Disproportionate absorption of upside and downside indicates the decision maker acts for its own account. Quantify expected exposure across return scenarios rather than relying on nominal ownership percentages.
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Official guidance: IFRS issued standards
Protective rights such as approval of fundamental changes do not prevent the decision maker from directing day-to-day relevant activities when kick-out rights are absent or non-substantive.
Substantive participating rights held by others deprive the decision maker of power over the relevant activities, so it does not control the investee for its own account (IFRS 10.B22-B25; IFRS 10.18).
Official guidance: IFRS issued standards
IFRS 10.B73-B75 require an investor to consider whether other parties act on its behalf as de facto agents: related parties, parties that received their interests as a contribution or loan from the investor, parties that cannot finance operations without subordinated support, and parties whose key management is shared. Where de facto agents exist, their decision-making rights and return exposure are considered together with the investor's own. This mapping frequently reverses borderline principal conclusions.
Assess related party and concert-party relationships under IFRS 10.B73-B75 before concluding on principal status; a de facto agent's rights count as the investor's own.
Official guidance: IFRS issued standards
No single factor other than a single-party unconditional removal right is determinative: IFRS 10.B60 lists the scope of decision-making authority, rights held by other parties, remuneration, and returns from other interests as factors to weigh together, with different weightings depending on the facts. Document the weighting rationale, since the same fee structure can support different conclusions in different governance settings.
Complete the weighted analysis of all IFRS 10.B60 factors before the consolidation conclusion; single-factor assessments do not support a principal-agent judgment.
Official guidance: IFRS issued standards
Select whether the reporting entity consolidates as principal or does not control because it acts as agent for investors with substantive kick-out or economic power.
Consolidate the investee if the full IFRS 10.7 control definition is met, and disclose significant principal-agent judgments under IFRS 12.7. Do not consolidate: an agent exercising delegated decision-making rights does not control the investee (IFRS 10.18); identify the principal and apply IFRS 9 or IAS 28 to the interests retained.
Official guidance: IFRS issued standards
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