Volume 8, No. 6


Consolidation Policy: FASB's Plan To Make Companies Whole:  For forty years, companies have been consolidating financial statements of subsidiaries and investments according to the bright lines spelled out by the AICPA's Committee on Accounting Procedure, spiritual ancestor to the FASB. The problem with the standard: because of narrowness of the rules, many firms do not consolidate all of the businesses over which they control destiny. Firms may package undesirable assets and liabilities into separate subsidiaries, with contractual strings attached that leave the "packager" in control. Shifting the ownership level to a certain point makes it possible for the controlling firm to show whatever consolidation picture it wants: if it's desired to show as little assets and liabilities as possible, subsidiary stock can be sold to a level that permits financial statement "de-consolidation." Consequently, when analysts and investors study the balance sheet of such a firm, they do not see the entire entity that produced the earnings results; they see only the pieces they are permitted to see. The FASB wants to end such fragmentary reporting. It is re-defining the notion of control in such a way that "frag reporters" will be made into whole companies - starting next year.

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