ACCA Advanced Taxation (ATX) Practice Exam

What term describes companies that are controlled by one another or by a common individual or entity?

1. Associated companies

2. Group companies

3. Related entities

4. Affiliated companies

The correct answer is: Associated companies

The term that describes companies that are controlled by one another or by a common individual or entity is "associated companies." Associated companies typically refer to a relationship where one company has significant influence or control over another, often demonstrated by holding a minority interest or participating in the management. This can include partnerships or other arrangements where the entities work closely together while maintaining their separate identities. The concept is important as it helps in understanding the corporate structure and the regulatory framework that governs financial reporting, taxation, and the conduct of business between interconnected entities. This relationship can impact financial results and may lead to consolidated financial statements or special reporting disclosures. While other terms like "group companies," "related entities," and "affiliated companies" can be used in specific contexts, they might not convey the same legal or governance implications that "associated companies" does. For example, "group companies" may refer more broadly to all companies under a common parent, and "related entities" might include those with economic ties but without direct control. Thus, using the term "associated companies" accurately captures the essence of the relationship described in the question.