This would include such events as business combinations, for example companies that have separate financial statements prepared that need to be combined to reflect a legal entity. In this process, certain thing such as inter-company activity need to be eliminated in order to not gross up items like receivables or revenues. This is because transactions such as sales that a company has with itself are not recognizable until an external party, for example another company buying the goods, becomes involved.
Differing Fiscal Year Ends per ASC 810-10
One item that comes up when consolidating financial statements of multiple companies is when the calendar date of their year ends differ, thus causing a timing issue. When this occurs, often times one of the entities will change their year end to line up with the other’s so there is no timing difference. When this occurs, it is determined to be a voluntary change in accounting principle and must be disclosed as such. The applicable standard is ASC 250 and disclosed as such.
Variable Interest Entities (VIEs) in ASC 810
The consolidation of an entity within the financial statements of the parent under ASC 810 has specific rules which should be adhered to. In the past, an company had to consolidate any entity which it had control over. Now, the parent must provide disclosures about its involvement in VIEs, as well as any risks that it may be exposed to as a result, including changes to the risk exposure from the previous period.
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