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18.3 General consolidation presentation and disclosure principles
Publication date: 30 Sep 2023
us Financial statement presentation guide
Consolidated financial statements include the accounts of a reporting entity and all other legal entities in which it holds a controlling financial interest (i.e., subsidiaries of the reporting entity). ASC 810-10-10-1 and S-X 3A-02 affirm the fundamental principle in US GAAP that consolidated financial statements are presumed to be more meaningful than separate financial statements. Determining whether a reporting entity’s interest in a legal entity provides it with a controlling financial interest depends on a number of different factors.
Consolidation presentation and disclosure requirements vary depending on whether the subsidiary is a VIE (see CG 2) or a VOE (see CG 3). In any event, when a reporting entity consolidates a wholly- or partially-owned subsidiary, it should disclose its consolidation policy. In addition, as discussed in ASC 810-10-50-2AC, if a reporting entity includes its consolidation disclosures in multiple footnotes, it should cross-reference between them.
18.3.1 Disclosure of - partially-owned consolidated subsidiaries
A reporting entity should disclose the effects of any changes in a subsidiary’s equity that is attributable to the reporting entity (e.g., a capital contribution or the reporting entity’s purchase or sale of its subsidiary’s equity).
When a reporting entity consolidates a less-than-wholly-owned subsidiary, ASC 810-10-45-18 to ASC 810-10-45-21 requires the parent to attribute the following amounts to the controlling and noncontrolling investors on the face of the income statement:
- Consolidated net income or loss
- Consolidated comprehensive income or loss
Additionally, as discussed in ASC 810-10-50-1A(b), the following amounts that are attributable to the parent should be presented on the face of the financial statements or separately disclosed in the footnotes:
- Income from continuing operations
- Income from discontinued operations
Further, as discussed in ASC 810-10-50-1A(c), a parent should perform a reconciliation of the change in stockholders’ equity as of the beginning and end of each reporting period presented, including the following components:
- Total equity (net assets)
- Equity (net assets) attributable to the reporting entity
- Equity (net assets) attributable to the noncontrolling interest(s)
This reconciliation should also include separate disclosure of net income, each component of comprehensive income, and transactions with owners acting in their capacity as owners. For transactions with owners, contributions from and distributions to the owners should be shown separately.
ASC 810-10-50-1A(d) requires reporting entities to disclose in the footnotes a separate table (or schedule) that shows the effects of any changes in a parent’s ownership interest in a subsidiary. The disclosure is only required in periods when a parent’s ownership interest in a subsidiary changes.
In addition, a reporting entity may have multiple consolidated subsidiaries for which disclosure of information described in ASC 810-10-45-18 through ASC 810-10-45-21 is warranted. It may choose to present such information on an aggregated basis.
18.3.2 General consolidation disclosure considerations
Reporting entities should consider separate disclosure of instances when (1) a majority-owned subsidiary is not consolidated, and (2) a less than majority-owned subsidiary is consolidated.
Consolidation is an area that has drawn comments from the SEC staff. The SEC staff may request additional disclosure when a reporting entity’s disclosures do not provide adequate transparency regarding its conclusions related to consolidation, including in the following areas:
- The terms of the reporting entity’s interests in an entity
- The factors considered by the reporting entity when determining why it does or does not consolidate an entity
- A discussion of why the reporting entity does not consolidate an entity in which it owns greater than 50 percent of the outstanding equity interests or receives a majority of the entity’s economics (such as the nature and substance of rights held by the minority investor), especially when these types of conditions exist and an entity is being deconsolidated.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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