What is meant by control in group accounting?

Control in group accounting refers to the ability of a parent company to govern the financial and operating policies of a subsidiary in order to obtain benefits from its activities. This concept is fundamental in determining how a group of entities is consolidated for financial reporting purposes. When a parent has control, it normally indicates that it can make decisions that significantly affect the subsidiary's operations and management.

The essence of control encompasses not only ownership interests but also the practical ability to influence the subsidiary's decisions. This can be achieved through a variety of mechanisms including voting rights, board representation, and other contractual arrangements. In this context, control is critical as it establishes the basis for consolidating financial statements, where the assets, liabilities, income, and expenses of the subsidiary are included in the consolidated accounts of the parent company.

Other concepts, such as simply having a certain percentage of shares or the legal authority to appoint board members, do not fully capture the broader implication of control in the financial context. While ownership percentage and authority can influence control, it is the power to govern and direct the financial and operational policies that defines the essence of control for accounting purposes.