Rules for consolidating subsidiaries
Most major corporations comprise numerous companies bought along the way to create their empires.The financial statement reflects the financial results for all the entities it bought as well as the original assets of the company.However, when reporting financial information, the parent company is required to submit financial statements that combine their information with that of their subsidiaries.These documents are called consolidated financial statements and allow the health of the group to be assessed as a whole, rather than piece-by-piece.If you hold a minority interest in the subsidiary of a parent company, the consolidated financial statement won’t give you the information you need to make decisions about your holdings.A subsidiary with minority shareholders must report its financial results separately from its parent company’s in addition to having its report included in the consolidated financial statements.Because the parent company now fully controls the subsidiary, by accounting rules, the parent company must present its subsidiary’s and its own financial operations in a consolidated manner (even though the two companies may be separate legal entities).
Shareholders don’t even need to know the results of these subsidiaries.
A noncontrolling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.
The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require: What Is the Scope of This Statement?
Non-consolidated subsidiaries thus performed just like other off-balance sheet entities, even if for a long time they escaped the attention of analysts and policymakers.
In a recent paper (Gong 2015), we examine the use of subsidiaries as off-balance sheet vehicles by US bank holding companies (BHCs) during the 2000-2013 period.