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This also ties in with other notable exceptions that have been recently modified, namely that a subsidiary is specifically not to be included in a consolidated financial report when the controlling interest's holding of the majority voting value/shares in the subsidiary is intended to be temporary, and a sale is expected or desired in the near future (Shortridge & Smith 2007). The vague definitions in both of these exclusionary circumstances are the main cause for concern as to the real effects that the financial reporting consolidation changes have had on accuracy.
Most of the changes were necessary and warranted; when a controlling company's capital is tied up in subsidiary stocks and other means of ownership, there is an obvious effect on the controlling interest's value based on the value of the subsidiary's assets. The is true whether or not the subsidiary is located in a foreign country of even if there is a substantial minority interest in the subsidiary. Inclusion in consolidated reports on these grounds definitely leads to greater accuracy in financial reporting because, quite simply, it more accurately reports the total value of a controlling interest's assets. At the same time, one could quite reasonably argue that the same is true for subsidiaries where control is not firmly established, and even where...
These two situations do not change the real value of the subsidiary, nor do they affect the cost of the majority ownership to the controlling interest. These are the factors that are truly important; a healthy subsidiary, even if possibly controlled by minority interests, still adds value to the controlling interest's portfolio, and a financially sick subsidiary necessarily detracts from the overall health of a controlling company. Both of these effects need to be included in financial reports if they are to have nay semblance of completeness.
More changes have already been proposed to financial reporting consolidation that could lead to greater complexities of valuation and consolidation (Shortridge & Smith 2007). This is not nearly as necessary as streamlining financial reporting methods would be. The complexity of financial reporting increases its obscurity, and this is beneficial to no one but "creative" accountants.
References.
CPA Class. (2009). "Consolidation." Accessed 9 October 2009. http://cpaclass.com/gaap/sfas/gaap-sfas-94.htm
Shortridge, R. & Smith, P. (2007). "A Comparison of the Proprietary, Parent, Entity, and IASB Views." The CPA journal online. Accessed 9 October 2009. http://www.nysscpa.org/cpajournal/2007/407/infocus/p23.htm
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