The Concept of Control in Consolidated Financial Statements: Convergence of U.S. and International Accounting Rules

By Casabona, Patrick A.; Ashwal, Alex | Review of Business, Spring 2005 | Go to article overview

The Concept of Control in Consolidated Financial Statements: Convergence of U.S. and International Accounting Rules


Casabona, Patrick A., Ashwal, Alex, Review of Business


Abstract

Recent progress has been made toward the convergence of a global set of accounting standards. However, more work needs to be done. A significant step in that continued direction will be complete when the FASB finalizes its proposed standard on consolidation policy, aligning its rules with international accounting standards. This paper focuses on the principle of control as it is applied in U.S. and international accounting consolidation rules and the convergence effort made in this area.

**********

Introduction

The recent progress made toward the convergence of a global set of accounting standards has been well documented [1,3]. Significant progress has been made in attaining a global financial reporting framework, as the convergence of U.S. Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRSs) has accelerated in recent years. This paper focuses on the principle of control as it is applied in U.S. and international accounting consolidation rules. It also examines the progress being made towards convergence of these consolidation procedures and concludes that it has been moving forward slowly--but much more work needs to be done.

U.S. GAAP's Consolidation Rules

The Financial Accounting Standards Board's (FASB) consolidation policy project has for many years focused on developing new standards to determine which entities should be included in consolidated financial statements. This project is aimed at reconsidering the consolidation principles included in Accounting Research Bulletin No. 51, Consolidated Financial Statements (ARB 51), which was issued in 1959. ARB 51, which was subsequently amended by Statement on Financial Accounting Standard 94 (SFAS 94), Consolidation of All Majority-Owned Subsidiaries in 1987 and SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets in 2001 and interpreted by FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities: An Interpretation of ARB No. 51 (FIN 46(R)), in 2003, describes the purpose of consolidated financial statements and the general rule of consolidation policy. Under ARB 51, consolidated financial statements are required when one of the companies in the group directly or indirectly has a controlling financial interest in the other companies, where control is defined as having ownership of a majority voting interest (i.e., over 50% of the outstanding voting shares of another company). SFAS 94 amended ARB 51 to eliminate all of the exceptions to consolidation, except when control is likely to be temporary or if it does not rest with the majority owner (as, for instance, if the subsidiary is in legal reorganization or in bankruptcy). However, SFAS 144 recently eliminated this exception.

The stated purpose of consolidated financial statements and the general rule of consolidation presented in ARB 51 focus on companies that issue voting shares, which generally are business enterprises organized as for-profit corporations. Under these requirements consolidation is based on control, where control is generally measured as having more than 50% of an entity's outstanding voting shares of equity. However, during the years since ARB 51 has been issued, both business enterprises and not-for-profit organizations have continued to conduct a growing and diverse range of activities through increasingly complex organizational structures. Therefore, during 1999, the FASB issued a proposed Statement of Financial Accounting Standards (SFAS), Consolidated Financial Statements: Purpose and Policy: Revision of Exposure Draft issued October 16, 1995. This proposed Statement, which is one of the FASB's international accounting convergence projects, would supersede the provisions of paragraphs 1-3 and 5 of ARB 51, as previously amended, and would amend ARB 51 to extend its provisions to not-for-profit organizations. This Statement requires an entity (parent) to consolidate all entities that it controls, where control may exist through means other than a majority voting interest. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

The Concept of Control in Consolidated Financial Statements: Convergence of U.S. and International Accounting Rules
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.