Consolidated financial statements: New FASB ground rules?

Abstract

AbstractThis article discusses the key issues raised in FASB's new discussion memorandum, Consolidation Policy and Procedures: (1) Should control, rather than majority ownership, be the main criterion for consolidating the financial statements of two companies? (2) If a subsidiary is less than wholly owned, should 100 percent of its fair values at acquisition date be recognized in consolidation, or only the parent's proportionate share of fair values? (3) Should goodwill attributable to the noncontrolling (minority) interest in the subsidiary be included, or only the parent's share of goodwill? (4) If majority ownership is acquired in a series of steps, should the subsidiary's assets and liabilities be measured in consolidation by recognizing separate layers of value for each individual block of stock, or should the subsidiary's assets and liabilities be measured on a single date, namely the date control is obtained? (5) If the parent increases its majority holding by buying additional shares, is another layer of value added to the subsidiary's assets and liabilities in consolidation, or is the purchase a “treasury stock” transaction ? (6) If the parent sells a portion of its holding but continues to maintain control, is a gain recognized in consolidation, or is the sale a “treasury stock” transaction? (7) Should 100 percent of any unrealized profit on intercompany transactions be eliminated in consolidation, or only the parent's percentage? (8) How should noncontrolling (minority) interest be displayed in a consolidated balance sheet? In a consolidated income statement ? (9) In consolidation, should the subsidiary's accounting policies be conformed to those of its parent?.