The management of Perstorp AB Limited have advanced the following arguments to their shareholders as to why they would not be able to prepare Group Financial Statements for the Perstorp AB group as required by relevant International Financial Reporting Standards. Among others, they argue that;

1. That Perstorp AB is regarded a separate legal entity distinct from its subsidiaries whether wholly-owned or merely having control by virtue of the 50% shares threshold). They therefore do not want to consolidate Svedala AB Limited and even more so, Sabari Limited, which is an overseas subsidiary. In the words of the CEO, theres NO binding legal requirement for us to do this, neither have we registered Perstorp AB as a group - Perstorp AB Group Limited. The latter name does not exist in law.
2. Besides, Sabari Limited, which is a wholly-owned subsidiary is located in a political volatile country where there is an on-going case at the highest court over election results, as such, we may not have control over the entity.

1. Even though we have majority members on the board of Svedala AB and can sack them if they do not do our wishes, we only have 48% shares in that entity, by definition, we do not control them. We should therefore be exempt from consolidations.

Additional information: Perstorp AB is a listed company whose stocks are publicly traded. It is not an intermediate parent.

Required:

1. Discuss the view of management that they should not prepare consolidated financial statement for Perstorp group with the aid of relevant examples from above and motivated by requirements of the relevant reporting standards. (No need to mention the specific standard(s)).
2. Explain what constitutes control or how control is established for the purposes of preparing group financial statements.