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Thursday, November 14, 2013

PPT On Subsidiary Financial Statements


Subsidiary Financial Statements Presentation Transcript: 
1.Subsidiary Financial Statements

2.Subsidiary Financial Statements
Creditors, preferred stockholders, and non-controlling common stockholders of subsidiaries are most interested in the separate financial statements of the subsidiaries in which they have an interest.

3.Because subsidiaries are legally separate from their parents, the creditors and stockholders of  a subsidiary generally have no claim on the parent, and the stockholders of the subsidiary do not share in the profits of the parent.

4.Standard Requirements
ARB 51 indicates that consolidated financial statements normally are appropriate for a group of companies when one company “has a controlling financial interest in the other companies.”
FASB 94 requires consolidation of all majority-owned subsidiaries unless the parent is unable to exercise control.

5.Less Than Majority Ownership
A company may be able to direct the operating and financing policies of another with less than majority ownership.
FASB 94 does not preclude consolidation with less than majority ownership, but such consolidations have seldom been found in practice.
FASB 141R indicates that control can be obtained without majority ownership of a company’s common stock.

6.Ability to Exercise Control
Sometimes, majority stockholders may not be able to exercise control even though they hold more than 50 percent of outstanding voting stock.
Subsidiary is in legal reorganization or bankruptcy
Foreign country restricts remittance of subsidiary profits to domestic parent company
The unconsolidated subsidiary is reported as an intercorporate investment.

7.Changing Concept of the Reporting Entity
FASB 94, requiring consolidation of all majority-owned subsidiaries, was issued to eliminate the inconsistencies found in practice until a more comprehensive standard could be issued.
Completion of the FASB’s consolidation project has been hampered by, among other things, issues related to:
Reporting entity

8.FASB has been attempting to move toward a consolidation requirement for entities under effective control.
Ability to direct the policies of another entity even though majority ownership is lacking.
Even though FASB 141R indicates that control can be achieved without majority ownership, a comprehensive consolidation policy has yet to be achieved.

9.The accounting entity
Defining the accounting entity would help resolve the issue of when to prepare consolidated financial statements and what entities should be included.
FASB 160 deals only with selected issues related to consolidated financial statements, leaving a comprehensive consolidation policy until a later time.

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