Author Carmen Ridley explains the rules around accounting for trusts and the relationship with a Trustee company.
This is probably the question that has landed in my inbox the most in the last 12 months and as many of you may suspect, the answer is “it depends” on the terms and conditions of the Trust Deeds.
An important part of the answer to this question is the control definition in AASB 10 Consolidated Financial Statements since regardless of the entity type, this is how we determine whether one entity controls another. There is no blanket answer and the facts and circumstances for each Trustee / Trust relationship should be considered.
The table below sets out the elements of the control definition and some areas to consider in assessing whether a Trustee company controls a trust.
|Element of control||Factors to Consider|
|Power over the relevant activities||• What are the relevant activities? E.g. investing activities, decisions relating to property investments, trading entity activities
• Who has the ability to make the important decisions affecting these activities?
• Who has the ability to remove the decision maker – can the decision maker be removed unilaterally and without cause?
|Exposure to variable returns||• Does the decision maker have the ability to use the funds in a manner which may benefit them:
– Become a beneficiary
– Use the trust funds to invest in their ventures
– Borrow money to or from the trust
• What is the remuneration structure for the decision maker? If this is variable, is the remuneration consistent with market rates? Is the remuneration significant for the trust or the decision maker?
|Ability to affect the returns
through the power
|• Can the decisions made by the decision-maker affect the returns which they are exposed to, ie they will receive increased or lower benefits depending on the performance of the trust.|
The decision regarding whether a Trustee company controls a trust is judgemental and requires consideration of the specific terms and conditions in the trust deed or other governing documents.
Note that if a Trustee company concludes that they do not control a Trust then this decision should be documented in a position paper and consider whether estimates and judgements disclosures in the financial statements are required.