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If a reporting entity concludes that consolidated financial statements are not required, it may still be appropriate to bring together the balance sheet, income statement, equity, and cash flow accounts of two or more affiliated companies into a single set of comprehensive financial statements (i.e., as a single reporting entity). This may also be appropriate when components of a business that are not legal entities are carved-out from a reporting entity. The financial statements of the affiliated group are referred to as “combined” financial statements and should be labeled as such (as opposed to “consolidated”).
While consolidated financial statements are prepared on the basis of a controlling financial interest, as defined in ASC 810, combined financial statements are not. Combined statements may be prepared, for example, for entities under common control, because the resulting financial statements may be more meaningful than consolidated financial statements of the common parent. Combined financial statements may also be appropriate for entities that are under common management.
ASC 810-10-45-10 requires that combined financial statements be presented as if they are consolidated financial statements. Similar to consolidated financial statements, reporting entities eliminate intra-entity transactions in combined financial statements. Also, a reporting entity would treat noncontrolling interests, foreign operations, different fiscal periods, and income taxes in the same manner as in consolidated financial statements.
A noncontrolling interest is presented in combined financial statements when a subsidiary of any of the combined entities has a noncontrolling interest. The existence of a noncontrolling interest at the parent level is not reflected in the combined financial statements of the subsidiaries, as illustrated in the following example.
Example FSP 18-5 illustrates the presentation of noncontrolling interest in combined financial statements.
EXAMPLE FSP 18-5
Presentation of noncontrolling interest in combined financial statements
  1. How would the interest not held by Parent Company in Company B be presented in the combined financial statements of Company A and Company B?
  2. How would Company B’s interest in Company C be presented in the combined financial statements of Company A and B?
Analysis
  1. The combined financial statements of Company A and Company B would reflect 100% of Company B. There would be no accounting for the 20% not owned by Parent Company.
  2. In the combined financial statements of Company A and Company B, the 10% of Company C not owned by Company B would be reflected as a noncontrolling interest.
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