Question

Research the FASB and related positions after 2007. Two new FASB statements (141R and 160) were issued in 2007 and are now incorporated in ASC 805 and 810. You are aware that these two new statements require consolidated financial statements.

1. Your supervisor is in need of guidance on what constitutes “consolidated financial statements.” Write a short memo to your supervisor explaining the meaning of consolidated financial statements. Specifically, you should include a definition from the FASB’s Master Glossary. Briefly outline the year-end steps to comply with the new FASB statements.
   
2. Research the accounting issue and formalize your findings in a formal research memo. The formal memo should be in good form with proper grammar, conveying the results of your research. Students are welcome to discuss the case with each other; however, each student is responsible for writing his/her own research memo.

Answer 1

Consolidated financial statements are financial statements of an entity with multiple divisions or subsidiaries. Companies can often use the word consolidated loosely in financial statement reporting to refer to the aggregated reporting of their entire business collectively.

The purpose of consolidated statements is to present, primarily for the benefit of the shareholders and creditors of the parent company, the results of operations and the financial position of a parent company and its subsidiaries essentially as if the group were a single company with one or more branches or divisions. There is a presumption that consolidated statements are more meaningful than separate statements and that they are usually necessary for a fair presentation when one of the companies in the group directly or indirectly has a controlling financial interest in the other companies.

As Per Master Glossary of FASB Consolidated financial statements means-

The financial statements of a consolidated group of entities that include a parent and all its subsidiaries presented as those of a single economic entity.