Consolidating accounts rules
46 in January 2003 and a revised version in December 2003 to help companies decide whether to consolidate VIEs into their financial statements.
A VIE MUST BE CONSOLIDATED INTO THE FINANCIAL statements of the primary beneficiary company when it does not have enough equity at risk or its equity investors lack any of three characteristics of controlling financial interest.
AMONG ENRON’S PROBLEMS WAS ITS USE of variable interest entities, which allowed it to leave significant amounts of debt off its balance sheet.
In response to concern about this practice, FASB issued Interpretation no.
There is another view which believes that CFS is not required if there is no subsidiary as Sec 129 requires consolidation to be done as per AS 21, but as per our view the applicability of CFS is governed by Sec 129 and not AS 21, AS 21 only prescribes the method once CFS is required to be done under any statute. However, the said exemption was only for the financial year 2014-15.
Accordingly, such companies come within the purview of consolidation from FY 15-16 onwards.
Most major corporations comprise numerous companies bought along the way to create their empires.
In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group company as consolidated financial statements.
Upon consolidation, the original organizations cease to exist and are supplanted by a new entity.
A parent company can acquire another company by purchasing its net assets or by purchasing a majority share of its common stock.
The equity at risk should be sufficient for the VIE to finance its activities without additional support.
A VIE’S PRIMARY BENEFICIARY TYPICALLY IS ABLE to make decisions about the entity and share in profits and losses.