Glossary›Emissions accounting and measurement›Financial control approach
Glossary term
Cluster D · D10
Tier 2
Financial control approach
Definition
Under the financial control approach an organisation accounts for 100 per cent of the emissions from operations over which it has financial control, meaning it can direct the financial and operating policies with a view to gaining economic benefit. Operations it does not financially control are excluded entirely. It aligns most closely with the accounting consolidation.
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In practice
Financial control is the least used of the three approaches in Australia and, for some groups, the one that would have caused the least trouble.
Its defining virtue is alignment. The financial control test is close to the control test that drives the accounting consolidation, so the entities inside the emissions inventory are close to the entities inside the consolidated financial statements. For a group with a complex structure that is a substantial ongoing saving: one entity list, one set of acquisition and disposal dates, one population to reconcile, and a boundary an assurer can test directly against audited records rather than against a separately maintained schedule.
Like operational control it is binary. Controlled operations are in at 100 per cent, non-controlled operations are out at zero, and there is no proportional treatment. The difference from operational control is the test applied, and the difference bites in precisely the places where control and operation diverge.
The two cases that separate the approaches for an Australian group:
A leased site the entity operates but does not financially control. Under operational control it is fully in Scope 1 and 2. Under financial control the treatment follows who bears the financial risk and reward, which for many leases keeps it in but for some arrangements does not.
A subsidiary the entity financially controls but does not operate: a controlled entity run under a management agreement by a third party. Financial control brings it in; operational control may not.
Where the approaches usually agree is on non-controlled joint ventures, which both exclude from Scope 1 and 2 and push into Category 15.
The reason financial control is rare in Australia despite its administrative advantages is NGER. An entity with an NGER obligation already holds operational control determinations for its facilities, and running financial control for AASB S2 means maintaining two boundaries and reconciling them permanently. For an entity with no NGER history and a complicated group structure, financial control deserves more consideration than it typically gets, and the choice should be made deliberately in the first year rather than inherited from whichever spreadsheet arrived first.
Adopting it is a decision with a long tail. Appendix B paragraph B27 requires the reason for the choice to be disclosed and related to the disclosure objective, and changing approach later is a method change requiring restatement.
What the assurer does with it
Financial control is the approach an assurer can test most directly, which cuts both ways: less work when it is right, faster detection when it is not.
They take the consolidation schedule and the group structure note from the audited financial statements and compare them entity by entity to the inventory. Under financial control the two populations should be close, so every difference is a discrete item with a reason, and the reason is usually acquisition timing, a dormant entity, or an operation with no emissions rather than a boundary judgement.
For material divergences they test the financial control determination against the governing documents: shareholders agreements, constitutions, unit trust deeds, and for leases the lease itself. The question is whether the entity can direct financial and operating policies with a view to economic benefit.
They also check acquisition and disposal dates, because financial control changes on a date that is already documented and audited, and a part-year entity that contributed part-year results to the financial statements should contribute part-year emissions to the inventory.
They accept an inventory population reconciled entity by entity to the consolidation with every difference explained, and determinations supported by the governing documents. They reject a proportional figure in a financial control inventory, an entity inside the consolidation and outside the inventory with no reason recorded, part-year entities included for the full year, and a stated financial control basis where the model actually follows operational control determinations inherited from NGER.
Commonly confused with
Operational control. The two are both “control” approaches and are used interchangeably in conversation, but they apply different tests and produce different populations: the divergence is exactly at leased and managed operations. Also confused with the reporting boundary for the statutory report itself, which is set by the accounting consolidation and is not a choice.
Sources
1
2
Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004 revised edition)
GHG Protocol
Review status
Review required
Last reviewed
15 September 2026
Editorial pass, unsigned
Reviewer required
Carbon accounting specialist and registered company auditor
Next scheduled review
1 July 2027
Part of
Cluster D, Emissions accounting and measurement
49 terms from the head term carbon accounting down to individual Scope 3 categories and the mechanics of factors, boundaries and data quality. The largest cluster in the glossary.
Related terms
The parent choice this approach is one of three answers to
The other control approach, and the leased and managed operations where they part
Why even the closest-aligned approach still needs a reconciliation
Related questions
What is our organisational boundary and who decides it?
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Your organisational boundary is the set of entities and facilities whose emissions you report, and the basis on which you include them. Management decides it, the board or audit committee approves it, and it should reconcile to the consolidated entity in your financial report. Operational control is the common Australian starting point, and the friction sits in joint ventures, leased sites, franchises and recent acquisitions.
Do our subsidiaries have to report separately or does the parent cover them?
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Each entity is tested on its own. A subsidiary that must lodge its own financial report under Chapter 2M and meets a section 292A test prepares its own sustainability report, even where the parent reports as well. Being consolidated into the parent’s report does not by itself remove the obligation.
Other terms in this cluster
Financial control approach