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The paper examines the changes that have been made to the exclusion of subsidiaries from consolidated financial reporting. The paper discusses the debate as to how much this truly affects the accuracy of financial reporting from consolidated entities, as well as the direction and degree of distortion that the changes to consolidated reporting rules may have created. The paper points out that more changes have already been proposed to financial reporting consolidation that could lead to greater complexities of valuation and consolidation, but this paper contends that this is not nearly as necessary as streamlining financial reporting methods would be.
From the Paper:"The modifications made to financial reporting policy generally eliminate most circumstances under which subsidiaries would not be included in consolidated financial reports. The remaining exception is when there is significant doubt as to the controlling interest's actual control over the subsidiary (CPA Class 2009). This also ties in with other notable exceptions that have been recently modified, namely that a subsidiary is specifically not to be included in a consolidated financial report when the controlling interest's holding of the majority voting value/shares in the subsidiary is intended to be temporary, and a sale is expected or desired in the near future (Shortridge & Smith 2007). The vague definitions in both of these exclusionary circumstances are the main cause for concern as to the real effects that the financial reporting consolidation changes have had on accuracy.
"Most of the changes were necessary and warranted; when a controlling company's capital is tied up in subsidiary stocks and other means of ownership, there is an obvious effect on the controlling interest's value based on the value of the subsidiary's assets. The is true whether or not the subsidiary is located in a foreign country of even if there is a substantial minority interest in the subsidiary."
Sample of Sources Used:
- CPA Class. (2009). "Consolidation." Accessed 9 October 2009. http://cpaclass.com/gaap/sfas/gaap-sfas-94.htm
- Shortridge, R. & Smith, P. (2007). "A Comparison of the Proprietary, Parent, Entity, and IASB Views." The CPA journal online. Accessed 9 October 2009. http://www.nysscpa.org/cpajournal/2007/407/infocus/p23.htm
Cite this Term Paper:
Exclusion of Subsidiaries from Consolidated Reporting (2012, March 27) Retrieved May 22, 2013, from http://www.academon.com/term-paper/exclusion-of-subsidiaries-from-consolidated-reporting-150618/
"Exclusion of Subsidiaries from Consolidated Reporting" 27 March 2012. Web. 22 May. 2013. <http://www.academon.com/term-paper/exclusion-of-subsidiaries-from-consolidated-reporting-150618/>