Volume 5, No. 2


Seeing The Whole Elephant: Changing Consolidation Practices:  Three blind men once touched an elephant: each one thought the elephant was a different animal depending on the part he touched. Their impressions, of course, were utterly wrong: the elephant was still the same beast it had always been. For years, companies have been using bright lines of ownership to determine whether or not they should consolidate subsidiaries - often leaving subsidiaries with high debt levels off of the balance sheet, even though the parent may effectively control them. Like the blind men of the story, investors are seeing only part of the elephant when they look at presently-constructed"consolidated" financial statements. The Financial Accounting Standards Board would like to change this situation by making the criteria for consolidation of subsidiaries reflect effective control rather than specific levels of ownership. The intended result would be the consolidation of many subsidiaries that are presently treated as investments or are almost completely "off the balance sheet". Bottom line: investors would see "the whole elephant".

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