Q：
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What is a subsidiary under Companies Ordinance and applicable accounting standards?
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A：
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According to section 13 of the Companies Ordinance, a subsidiary is an entity over which its holding company can:
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controls the composition of board of directors of the subsidiary;
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controls more than half of the voting rights in the subsidiary; or
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holds more than half of subsidiary’s issued share capital (excluding any part of it that carries no right to participate beyond a specified amount in a distribution of profits or capital).
A body corporate is also a subsidiary of another body corporate if it is a subsidiary of a body corporate that is that other body corporate’s subsidiary.
According to HKFRS 10, a subsidiary is an entity that is controlled by another entity.
Holding company controls a subsidiary only if the holding company has all the following:
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existing rights that give it the current ability to direct the relevant activities;
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exposure, or rights, to variable returns from its involvement with the subsidiary; and
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the ability to use its power over the subsidiary to affect the amount of the holding company’s returns.
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Q：
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What is an associate under applicable accounting standards?
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A：
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According to HKAS 28, an associate is an entity over which the investor has significant influence.
Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.
If an entity holds, directly or indirectly (e.g. through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence unless it can be clearly demonstrated that this is not the case.
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Q：
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What is a joint venture under applicable accounting standards?
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A：
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According to HKAS 28, a joint venture is a joint arrangement whereby two or more parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
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Q：
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Must all subsidiaries be included in the consolidated financial statements under Companies Ordinance?
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A：
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According to section 381, the annual consolidated financial statements for a financial year must include all the subsidiaries of the company unless the company satisfy the following conditions:
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one subsidiary undertaking may be excluded from the annual consolidated financial statements if the inclusion of the subsidiary undertaking is not material for the purpose of giving a true and fair view of the financial position, and of the financial performance; and
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(more than one subsidiary undertaking may be excluded from the annual consolidated financial statements if the inclusion of those subsidiary undertakings taken together is not material for the purpose of giving a true and fair view of the financial position, and of the financial performance.
In addition, where the company falls within the reporting exemption for the financial year, one or more subsidiary undertakings may be excluded from the annual consolidated financial statements in compliance with the accounting standards applicable to the statements.
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