Financial reporting standards (FRS) defines dominant influence as influence that can be exercised to achieve the operating and financial politics desired by the holder of the influence, notwithstanding the rights or influence of any other party.
The standard then distinguishes between the two differences situations involving dominant influence.
- The right to exercise a dominant influence means that the holder has a right to give directions with respect to the operating and financial policies of another undertaking with which its directors are obliged to comply, whether or not they are for the benefit of that undertaking.
- The actual exercise of dominant influence is the exercise of an influence that achieves the result that the operating and financial policies of the undertaking influenced are set in accordance with the wishes of the holder of the influence and for the holder’s benefit whether or not those wishes are explicit. The actual exercise of dominant influence is identified by its effect in practice rather than by the way in which it is exercised.