Subsidiary vs Associate vs Joint Venture
A subsidiary is an entity controlled by a parent (Ind AS 110); an associate is an entity over which significant influence but not control is exercised, typically indicated by 20 to 50 percent ownership (Ind AS 28); and a joint venture is a jointly controlled entity under a contractual arrangement (Ind AS 111), each requiring different accounting treatments in consolidated financial statements.
The distinction between control, significant influence, and joint control formed the foundation for three different accounting treatments in Indian financial statements prepared under Ind AS.
Control, under Ind AS 110, was defined in terms of power over the investee, exposure to variable returns, and the ability to use power to affect those returns. Power could arise from majority voting rights, but also from contractual arrangements, potential voting rights, or de facto control through a widely dispersed ownership structure. A 45 percent stake could constitute control if all other shareholders held small and uncoordinated stakes. Once control was established, the subsidiary was fully consolidated — its assets, liabilities, revenues, and expenses were added line by line to the parent's statements, with a minority interest (non-controlling interest) recognising the portion not attributable to the parent.
Significant influence under Ind AS 28 was presumed when an investor held 20 percent or more of voting power unless there was clear evidence to the contrary. Significant influence implied the ability to participate in financial and operating policy decisions without controlling them. Associates were accounted for using the equity method: the investment was initially recognised at cost and subsequently adjusted for the investor's share of the associate's profits, losses, and other comprehensive income.
Joint ventures under Ind AS 111 were arrangements where two or more parties had joint control — a contractually agreed sharing of control requiring unanimous consent on relevant activities. India aligned with IFRS 11 in 2015, eliminating the proportionate consolidation method that had previously been permitted. Under the current framework, joint ventures are also equity-accounted, similar to associates.
For analysts, these distinctions had important implications. A company that moved a subsidiary off the balance sheet by diluting its stake below 50 percent (while retaining 40 percent) converted a fully consolidated entity into an equity-accounted associate. This reduced reported debt (since the subsidiary's borrowings no longer appeared on the consolidated balance sheet), improved debt ratios, and potentially reduced reported revenue — even though the economic relationship remained substantially unchanged. Such 'deconsolidation' manoeuvres were scrutinised by analysts who looked through the accounting treatment to the economic substance.
The treatment of special purpose entities (SPEs) and variable interest entities created further complexity. A company might sponsor an entity with minimal equity contribution but retain exposure to the entity's risks and rewards, effectively controlling it despite low nominal ownership. Ind AS 110's control model was designed to capture these arrangements.
Disclosures required under Ind AS 27 (separate financial statements) and Ind AS 28 included the nature of the relationship, country of incorporation, ownership percentage, and summarised financial information for material associates and joint ventures, enabling analysts to assess the quality of earnings attributable from these entities.