Consolidated versus consolidating financials
IFRS: Focuses on the concept of control in determining whether a parent/subsidiary relationship exists.Control is the parent’s ability to govern the financial and operating policies of a subsidiary to obtain benefits.Power is the existing rights that give the current ability to direct the relevant activities.
In circumstances in which one reporting entity will absorb a majority of a VIE’s expected losses and another reporting entity will receive the majority of that VIE’s expected residual returns, the reporting entity absorbing a majority of the losses is required to consolidate the VIE. Given the common control relationship that exists with Company A and Company B through having one individual owning the entirety of the stock in both entities, issuing combined financial statements would be appropriate.Those statements most likely would be more useful to end-users of the statements when compared to having separate financial statements prepared for the two entities.The focus of discussions in these materials is on some of the more frequently asked questions associated with using the FASB ASC 810 technical literature requirements and guidance. Using the guidance in FASB ASC 810-10-55-1B, there are circumstances under which combined financial statements, as distinguished from consolidated statements, of commonly controlled entities are likely to be more meaningful than these entities’ separate financial statements.
As an example, combined financial statements might be useful if one individual owns a controlling financial interest in multiple entities that are related in their operations.
US GAAP: There is no exemption for general purpose financial statements.