The paper 'Corporate Accounting Issues' is a wonderful example of a Finance and Accounting Case Study. This report discusses the case of preparation of consolidated financial statements and the decisions that finance officers have to make when faced with a consolidation dilemma. The introduction elaborates on the main theme of the report and the different parts that will be addressed hence setting the tone for the arguments. The case under discussion involves Financial Advisers Ltd who are involved with other businesses that have to be determined whether they qualify for consolidated financial statement preparation or not.
The first part explains the accounting standards and pronouncements that provide guidance to the chief finance officer in the preparation of consolidated financial statements. The second part outlines how the relationships within a group are determined in the case of subsidiaries. The last part analyses the provided case and gives personal opinion but using accounting standards on whether to prepare consolidated financial statements for the two scenarios provided. Introduction This report dwells on the case of Financial Advisers Ltd who offers financial services to various clients. There are two situations that the Chief Finance Officer has to determine whether consolidation of the financial statements is needed or not.
The parent/subsidiary relationship determination is important in making the decision for the preparation of the consolidated accounts. The control criterion provides guidance on determining whether the parent can prepare consolidated financial statements for an economic entity (Julie, 2011). The pronouncements as well as accounting standards involved have been discussed while also explaining the relationship within a group. The important decision of whether to prepare a consolidated financial statement for the two scenarios provides guidance to the chief financial officer in the final part.
The report concludes on the importance of consolidated accounts and how is important to determine the kind of relationship that exists between a parent and its subsidiary before consolidating accounts. Guidance and pronouncements to the CFO There a lot of guidance that the Chief Financial Officer can rely on from accounting standards and pronouncements when dealing with an issue of consolidated accounts or group accounts. AASB 10 provides extensively for the treatment of subsidiaries in case of group accounting where consolidates financial statements have to be prepared (Dagwell, Wines & Lambert, 2011 Consolidation is founded on the concept of ‘ control’ as well as changes in the ownership interests whereas control is maintained are accounted for as transactions between owners as owners in equity.
The aim of the consolidation account principle within the Australian Accounting Standards is to put in place procedures and principles for the preparation and presentation of the consolidated financial statements (Brown, 2013). Consolidated financial statements are normally presented by the parent company also referred to as a holding enterprise for the purpose of offering financial information concerning the economic activities of its group.
The statements target to present financial information concerning a parent as well as its subsidiary as being a single economic entity showing economic resources controlled by the group, the group’ s obligations, and results that the groups realize with its resources. Basic definitions are important in understanding the parent and subsidiary relationship and how the control aspect is determined. A subsidiary is an entity that may include an unincorporated entity like a partnership that is controlled by another entity that is referred to as the parent.
Control refers to the power of governing the operating and financial policies of an entity in order to get returns from its activities. Control is normally presumed when the parent company acquires more than fifty percent (half) of the voting rights of the entity. A subsidiary cannot be excluded from consolidation for the reason that its business activities are not similar to those of other entities in a group (Brown, 2013). Relevant information is offered through consolidating such subsidiaries as well as disclosing additional information within the consolidated financial statements concerning the various business activities of the subsidiaries.
Atrill, P., McLaney, E., & Harvey, D. (2014). Accounting: An Introduction, 6/E, London: Pearson Higher Education AU.
Brown, P. (2013). Financial Accounting and Equity Markets: Selected Essays of Philip Brown, Melbourne: Routledge
Dagwell, R., Wines, G., & Lambert, C. (2011). Corporate Accounting in Australia, Sydney: Pearson Higher Education AU.
Julie, E.M. (2011). Solvency in Financial Accounting, New York: Routledge.
Maree, J.G., & Keryn, C. (2007). Globalization of Accounting Standards, Sydney: Edward Elgar Publishing.