A business friend of yours has come to you for advice. Your friend has a business that has been involved in share ownership. Your friend has stated “I understand that consolidations are only required when a company exerts significant influence, in other words greater than 50% ownership in another company. Our company only owns 45% so consolidations will not be necessary”. Write a critique for the statement above.
Consolidated financial statements reflect the operating results and financial position of a group of companies under a common control as if are a single entity. When one company gets control over another company, it is known as the parent company and according to GAAP, it must prepare consolidated financial statements for external reporting purpose.
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