301789 Consolidation 1A6 Flashcards
For purposes of consolidating financial interests, a majority voting interest is deemed to be:
greater than 50% of the directly or indirectly owned outstanding voting shares of another entity.
greater than 50% of the directly or indirectly owned outstanding voting shares and at least 50% of the directly or indirectly owned outstanding nonvoting shares of another entity.
50% of the directly or indirectly owned outstanding voting shares and at least 50% of the directly or indirectly owned outstanding nonvoting shares of another entity.
50% of the directly or indirectly owned outstanding voting shares of another entity.
Question #301789
greater than 50% of the directly or indirectly owned outstanding voting shares of another entity.
GAAP requires that consolidated financial statements be prepared when one of the entities in the group directly or indirectly has a controlling financial interest in the other entities. FASB ASC 810 specifies that, in general, the usual condition for consolidated financial statements is ownership (direct or indirect) of a majority voting interest (i.e., at least one share in excess of 50%).
Consolidation
Consolidation is a reporting procedure in which the financial statements of the parent and the subsidiary are combined. The financial statements are prepared by the parent, not by the subsidiary. Consolidation is a reporting procedure only. It does not affect the accounting records of either the parent or the subsidiary.
All majority-owned subsidiaries must be consolidated with the parent unless control does not rest with the majority owner (e.g., if the subsidiary is in legal reorganization or bankruptcy).
Financial Statements
A financial statement is a structured representation of historical financial information, including related notes, intended to communicate an entity’s economic resources and obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework.
Financial statements ordinarily refer to a complete set of financial statements as determined by the requirements of the applicable financial reporting framework.
Generally Accepted Accounting Principles (GAAP)
Generally accepted accounting principles (GAAP) are basic accounting principles and standards and specific conventions, rules, and regulations that define accepted accounting practice at a particular time by incorporation of consensus and substantial authoritative support.
The Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification) is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. In addition to the SEC’s rules and interpretive releases, the SEC staff issues Staff Accounting Bulletins that represent practices followed by the staff in administering SEC disclosure requirements, and it utilizes SEC Staff Announcements and Observer comments made at Emerging Issues Task Force (EITF) meetings to publicly announce its views on certain accounting issues for SEC registrants. (FASB ASC 105-10-05-1)
Accounting and financial reporting practices not included in the Codification are nonauthoritative. Sources of nonauthoritative accounting guidance and literature include, for example, the following:
- Practices that are widely recognized and prevalent either generally or in the industry
- FASB Concepts Statements
- American Institute of Certified Public Accountants (AICPA) Issues Papers
- International Financial Reporting Standards (IFRS) of the International Accounting Standards Board
- Pronouncements of professional associations or regulatory agencies
- Technical Information Service Inquiries and Replies included in AICPA Technical Practice Aids
- Accounting textbooks, handbooks, and articles
The appropriateness of other sources of accounting guidance depends on its relevance to particular circumstances, the specificity of the guidance, the general recognition of the issuer or author as an authority, and the extent of its use in practice. (FASB ASC 105-10-05-3)
2116.02
As a general rule, current GAAP requires that consolidated financial statements be prepared when one of the entities in the group directly or indirectly has a controlling financial interest in the other entities. FASB ASC 810 specifies that the usual condition for consolidated financial statements is ownership (direct or indirect) of a majority voting interest (i.e., at least one share in excess of 50%).
FASB ASC 810
