Academic journal article Journal of International Business Research

Using Technology to Teach Advanced Accounting: The Case of Minority Interest in Consolidated Financial Statements

Academic journal article Journal of International Business Research

Using Technology to Teach Advanced Accounting: The Case of Minority Interest in Consolidated Financial Statements

Article excerpt


The preparation of consolidated financial statements is required for companies that own controlling interest over subsidiaries. The acquisition of other companies is seen as a means of leveraging an advantage over a company's competition through synergies achieved by two companies, increased economies of scale, vertical integration in a firm's value chain, or even diversification of risk (Hoyle, Schaefer, & Doupnik, 2009). Regardless of the reason, however, Statement of Financial Accounting Standards (SFAS) 141 revised in December 2007 (now known as SFAS 141R) requires that consolidated financial statements need be issued by the parent company if it has acquired a majority interest in its subsidiaries.

This paper summarizes the result of a class study using technology to enhance the learning of advanced accounting topics. The textbook only summarizes the state of the art on issues related with consolidations, business combinations and the preparation of consolidated financial statements. To make the class alive with real-world examples, we ventured into reading actual consolidated financial statements that we accessed from the Securities and Exchange Commission website. The students, using the Internet, read consolidated financial statements found in 10-K filings, worked with a class web page using PBwiki to upload their findings and used Excel to consolidate their findings. Since the 10-K reports are voluminous and each student must look at five company reports, they used "find" to limit their reading and just hone in on the presence of the specific object of search in the reports like the consolidated income statement, or consolidated balance sheet or other financial statements; notes or disclosures; or in the management discussion and analysis (MDA).

The class at that time wanted to examine the presentation of minority interest in controlled subsidiaries in the consolidated financial statements.


There was very little guidance on the accounting and presentation of minority interest in the consolidated financial statements. In FASB's own words, GAAP had no clear accounting and reporting guidance for the non controlling interest in a subsidiary (Bahnson, et al, p.47). This lack of guidance led to an unclear and inconsistent concept of non controlling interests and this created diverse and unproductive reporting. Neither SFAS 141 nor Accounting Research Bulletin (ARB) 51 provides any details as to the handling of minority interest in a subsidiary during consolidation. This allowed for the proliferation of different accounting treatments of minority interest. Some companies opted to preclude the minority equity interest share from the balance sheet, essentially consolidating only the parent company's share of the subsidiary's net assets. Some companies treated it as part of liabilities or stockholder's equity while some placed the item in-between, or "mezzanine," between the liabilities and stockholder's equity. This paper will summarize and show the various methods currently used by various companies in presenting minority interests in their consolidated financial statements. We used convenience sampling of public companies whose data for 2006 & 2007 were available.

The motivation for this class project was our earlier study of practices of various countries regarding this area of interest. FASB's Discussion Memorandum issued in 1992 entitled "Consolidation Policy and Procedures" presented three concepts of consolidated financial statements: the economic units concept, the parent company concept and the proportionate consolidation concepts. The economic unit concept supports the control of the whole company by a single management, and the consolidated financial statements should be about a group of operating entities presented as a single unit. Both the controlling and the non controlling interests are part of the ownership group of the consolidated company. …

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