Control in financial reporting: Theory and an empirical test

This study identifies what accountants and auditors perceive as the main attribute that gives a company the ability to have dominant control over other companies for the purpose of consolidated financial reporting. US GAAP regulations have stated dominant control is possible through owning majority of shares or voting rights. Other international standards, such as IFRS, shows a broader definitions of control exist in addition to majority of share ownership. The main attributes of control tested to identify control judgments are the total level of ownership, the level of direct and indirect ownership, the dispersion of ownership and the representation level in the Board of Directors. Conjoint analysis is used for this purpose. Participants evaluated different case scenarios that consists of attributes of control constructed as an orthogonal array. Participants are asked if, under each case, a company can be controlled or not and how confident they are with their decision. The data collected are tested at an individual (each participant separately) and aggregate level (all the participants as a whole) to disaggregate participant’s evaluations. The results show the majority of ownership and the level of board representation are the attributes significantly contributing to dominant-control judgments. Level of direct and indirect ownership and dispersion of ownership no have significant influence on ability to govern entities. Furthermore, a combination