(a) The local authority could only apply IPSAS 35: Consolidated Financial Statements when it controls the Housing Association. An entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature or amount of those benefits through its power over the other entity. An entity controls another entity if and only if the entity has all the following:

• power over the other entity.
• exposure, or rights, to variable benefits from its involvement with the other entity; and
• the ability to use its power over the other entity to affect the nature or amount of the benefits from its involvement with the other entity.

Does the local authority have the power of control over the Housing Association?
Control is the ability of an entity to exert power to direct the relevant activities of the other entity. The relevant activities are those activities that significantly affect the nature or amount of the benefits the entity receives from its involvement with the other entity. In this case, the local authority establishes terms and conditions to ensure that the housing provided remains affordable and available to meet local housing needs. However, it does not finance the operation of the Housing Association. Further, the local authority does not have the power to appoint the board members of the Housing Association, nor does it have representation on the board. This is indicative that the local authority does not have power to direct the relevant activities of the Housing Association.

Is the local authority exposed, or has rights to, variable benefits from its involvement with the Housing Association?
An entity is exposed, or has rights, to variable benefits from its involvement with an entity being assessed for control when the benefits that it seeks from its involvement have the potential to vary as a result of the other entity’s performance. Entities become involved with other entities with the expectation of positive financial or non-financial benefits over time. In the current case, the local authority would benefit from the affordable housing project by making houses affordable and available to the citizens in line with their objectives. This is indicative that the local authority has significant benefits from the operation of the Housing Association, which is to provide housing to the metropolis.

Does the authority have the ability to use its power over the Housing Association to affect the nature or amount of the benefits from its involvement with the association?
Control exists when an authority has the ability to use its power to affect the nature or amount of the benefits from its involvement with the entity being assessed for control. In this case, the authority does not have any power to control the operation of the Housing Association. This is indicative of the lack of power.

In conclusion, the local authority does not have power despite the existence of exposure to benefits associated with the operation of the Housing Association. Therefore, the local authority cannot consolidate the activities of the Housing Association under IPSAS 35.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        (b)

Under IPSAS 35: Consolidated Financial Statements, an entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature or amount of those benefits through its power over the other entity.

Does the government department have the power of control over the National Museum?
Control is the ability of an entity to exert power to direct the relevant activities of the other entity. The relevant activities are those activities that significantly affect the nature or amount of the benefits the entity receives from its involvement with the other entity. In this instance, a national museum is governed by a board of trustees who are chosen by the government department responsible for funding the museum. The trustees have freedom to make decisions about the operation of the museum. The department has the power to appoint the majority of the museum’s trustees. This is indicative of the presence of power of the government department to direct the relevant activities of the board of trustees.                                                                                                                                                                                                                                                                                                                                           (c)

The Senior Fellow of the civil society organization asserts that the preparation of consolidated financial statements of the authority is an exercise in futility and a waste of public resources. This view undermines the importance of economic entity reporting in the public sector.

Authorities, and sometimes other public sector entities, implement policies and deliver services through various entities. These include organizational and accounting units such as departments, special funds, and accounts that are integral to the public sector entity and through which it directly provides public services and performs its executive functions. For example, the Department of Health delivers health services on behalf of the authority through the National Health Services and several health facilities across the country.

Additionally, there are separate corporate entities with their own management, which have been granted financial powers and operational authority by legislation. In some cases, these entities may be jointly controlled with other organizations. Authorities or other public sector entities often have the authority to oversee the operations of one or more entities to benefit from their activities.

Further, the authority or entity may also be exposed to financial burdens or losses resulting from these activities. The purpose of general-purpose financial statements for the authority and other public sector entities is to provide a comprehensive account of the financial affairs and resources under the entity’s control, including those related to the activities of its agencies and enterprises.

This information is crucial for users to understand the entity’s operations, assess accountability for the management of resources entrusted to it, and support decision-making processes. It is important to disclose information about the resources, obligations, and service delivery or other activities that the entity, as a whole—whether an authority or another public sector entity—can direct, including through other entities. This disclosure is essential for accountability and decision-making, particularly when the results of such direction can generate benefits for the public sector entity or expose it to financial burdens or losses.

In conclusion, the view of the senior fellow is ill-informed about the information usefulness of such group accounts for accountability and decision-making purposes. Therefore, the Financial Controller should be encouraged to prepare consolidated accounts to provide more useful information for accountability and decision-making purposes.