Which type of return exposure is necessary for control as per IFRS 10?

The necessary type of return exposure for control, as defined by IFRS 10, is variable returns. This standard addresses the concept of control in the context of consolidated financial statements. An investor must have the ability to exercise control over an investee, which is achieved if they have rights that give them power over the investee and the potential to obtain variable returns from that involvement.

Variable returns can take various forms, including dividends, cash flows, or changes in the value of the investment. The significance of variable returns lies in their potential variability: the investor’s financial interests and rewards can fluctuate based on the performance of the investee, thus reflecting a true involvement and control over the entity.

The other return types, such as fixed income returns or guaranteed returns, do not inherently indicate the same level of control or alignment with the underlying risk and rewards of the investee. Without the exposure to variable returns, an entity may not be incentivized to exert control, as there would be limited financial benefit tied to the performance of the investee. Therefore, the requirement of variable returns is integral to establishing whether control exists under IFRS 10.