Academic journal article Journal of Accountancy

Second Try at Tough Issue

Academic journal article Journal of Accountancy

Second Try at Tough Issue

Article excerpt

The FASB tried to get a handle on consolidated financial statements back in October 1995, when it released an exposure draft, Consolidated Financial Statements: Policy and Procedures. Although the comment period ended 90 days later, no final statement was issued even after the board examined the 162 comment letters and held a public hearing. In August 1997, FASB decided to suspend the "procedures" portion until a later date and focus its attention on "policy." The result is a new ED, Consolidated Financial Statements: Purpose and Policy, that attempts to determine when both profit-making businesses and not-for-profits should include entities in consolidated financial statements.

Much is the same as before: The ED says a parent company--a "controlling entity"--should consolidate all subsidiaries unless control is "temporary" at the time an entity becomes a subsidiary. The trick is in defining "control" because businesses involve themselves in complex relationships where the issue isn't clear. The revised ED clarifies this definition and presents additional implementation guidance. …

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