A decision maker that holds other interests in an

A decision maker that holds other interests in an investee (like investments in the investee or
provides guarantees with respect to the performance of the investee), shall consider its exposure
to variability of returns from those interests in assessing whether it is an agent. Holding other
interests in an investee indicates that the decision maker may be a principal.
In evaluating the exposure to variability of returns, the decision maker shall consider the
magnitude of variability as follows:
It is to be noted that here the decision maker needs to consider the remuneration and other
interests in aggregate. Hence, even though in case the decision maker had concluded in the initial
assessment about remuneration that it is an agent, it needs to again consider remuneration in the
assessment of exposure to variable returns.
No
Yes
Yes
No
The remuneration agreement includes only terms, conditions or amounts
that are customarily present in arrangements for similar services and level
of skills negotiated on an arm’s length basis.
Not an agent
More likely to be an agent but
other facts and circumstances
should also be considered
The remuneration of the decision maker is commensurate with the services
provided
Higher
Lower
The magnitude of, and variability associated with, its economic interests,
considering its remuneration and other interests in aggregate
Decision maker is a principal
Decision maker is an agent
© The Institute of Chartered Accountants of India

14.36 FINANCIAL REPORTING
Apart from the magnitude of exposure to variable returns, decision maker shall also consider
whether its exposure to variability of returns is different from that of the other investors . If
yes, then whether this might influence its actions. For example, this might be the case when a
decision maker holds subordinated interests in, or provides other forms of credit enhancement to,
an investee.
The decision maker shall evaluate its exposure relative to the total variability of returns of the
investee. This evaluation is made primarily on the basis of returns expected from the activities of
the investee but shall not ignore the decision maker’s maximum exposure to variability of
returns of the investee through other interests that the decision maker holds.
For example, if a variation in investees returns by 1% causes variation in decision maker’s returns
from investee by less than 1%. However, a variation in investee’s returns by ` 100 causes
variation in decision maker’s returns from investee by ` 150 because of significant variation in the
market price of the equity shares of the investee.
Illustration 16: Link between power and returns
A decision maker (fund manager) establishes, markets and manages a publicly traded, regulated
fund according to narrowly defined parameters set out in the investment mandate as required by
its local laws and regulations. The fund was marketed to investors as an investment in a diversified