Corporate Accounting Assignment, OUM, Malaysia Present the financial affairs of a parent company and its legally distinct subsidiaries as if they were a single unified economic entity

University Open University Malaysia (OUM)
Subject Corporate Accounting

The purpose of consolidated financial statements is to ‘present the financial affairs of a parent company and its legally distinct subsidiaries as if they were a single unified economic entity (Huefner and Largay III, 1990, p. 26).

However, problems persist in relation to consolidated financial reporting such as ‘control when ownership is absent; technical issues of asset valuation; goodwill recognition, and minority interest presentation; and the need for separate reporting in addition to consolidated financial statements (Huefner and Largay III, 1990, p. 38).

The international financial reporting standard that provides guidance on consolidated financial statements is IFRS 10 (the Australian equivalent is AASB 10).

The objective of IFRS 10/AASB 10 Consolidated Financial Statements is to ‘establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities’ (AASB, 2015) There have been positive as well as negative reports on the implementation of IFRS 10/AASB 10.

For example, it leads to an increase in consolidated statements quality (Muller, 2014); the effects of the adoption are associated with financial reporting incentives (Bedford et al., 2022); or that consolidated financial statements do not possess the information content frequently attributed to them in the literature (Walker, 1976).

b. According to an article published by Huefner and Largay III (1990), one of the issues regarding consolidated financial reporting is ‘consolidation policy: the circumstances under which subsidiaries should or should not be consolidated.’ (Huefner and Largay III, 1990, p. 28).

Why do the authors think it is an issue? You must support your answer with published articles and journals.

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