Cpa Review- Far 3-5 (Consolidated Financial Statements)

Front 1

Consolidated Financial Statements

Back 1

Prepared when a parent-sub relationship has been formed. An investor is considered to have parent status when control over an investee is established or more than 50% of the voting stock of the investee has been acquired.

Hint 1

Under U.S. GAAP, all majority-owned subsidiaries (domestic and foreign) must be consolidated except when significant doubt exists regarding the parent's ability to control the sub, such as:
1. The sub is in legal reorganization
2. Bankruptcy and/or the sub operates under severe foreign restrictions.

Front 2

IFRS vs. U.S. GAAP- Consolidated F/S's

Back 2

-Under IFRS, a parent company must consolidate its investments in subsidiaries unless all the following conditions are met:
1. The parent company is itself a wholly owned sub, or is a partially owned sub of another entity and the other owners do not object to the parent not presenting consolidated F/S's

Hint 2

2. The parent company is not publicly traded and is not in the process of issuing securities in a public market
3. The ultimate or any intermediate parent of the parent company produces consolidated F/S's in compliance with IFRS.

Front 3

Acquisition Method- Fundamental Principles

Back 3

-The acquisition method is required to be used to record the acquisition of a subsidiary under both U.S. GAAP and IFRS. The main principles for applying the acquisition method are:

Hint 3

1. Recognition Principle: acquirer recognizes all of the sub's assets & liabilities, including identifiable intangible assets.
2. Measurement Principle: acquirer measures each recognized asset & liability and any NCI at its acquisition date FV.