A number of items should be considered when preparing parent company financial statements. The following discussion covers certain of these considerations but is not intended to be all-inclusive.

31.5.1 Accounts and adjustments recorded at the parent company level

Some reporting entities maintain certain accounts related to subsidiaries in the parent company’s books and records. The parent company’s presentation of these amounts should be the same as if the accounts or adjustments had been recorded directly in the books and records of the subsidiary entity. This is particularly important for subsidiaries that are foreign entities due to the impact of foreign currency translation.
Examples of accounts that may be recorded at the parent company level include reserves for income tax or environmental exposures, deferred income taxes, goodwill, intangible assets, and acquisition accounting adjustments. Additionally, some reporting entities record audit adjustments or other post-closing adjustments at the parent level without pushing them down to the accounting records of the subsidiary. To the extent these adjustments relate to subsidiaries that are foreign entities, the functional currency equivalent of such amounts, based upon historical exchange rates, should be assumed to be “pushed down” to the financial statements of the foreign entity for purposes of foreign currency translation.

31.5.2 Accounting changes in parent company financial statements

Similar to any other adjustments, any amounts reported by a subsidiary as a cumulative effect of a change in accounting principle should be reflected in the income statement of the parent company as its share of that cumulative effect as if the parent had made the change directly.

31.5.3 Discontinued operations in parent company financial statements

ASC 205-20 requires a disposal to be reported in discontinued operations if it represents a strategic shift that has (or will have) a major effect on a reporting entity’s operations and financial results. A subsidiary that is not consolidated in its parent company’s financial statements should be presented by the parent as a discontinued operation if it meets the discontinued operation criteria from the perspective of the parent (see FSP 27). A portion of a subsidiary can also qualify as a discontinued operation.
If an unconsolidated subsidiary reports a discontinued operation, the parent company should consider whether those operations also meet the discontinued operations criteria from the perspective of the parent. If the criteria are met from the parent’s perspective, discontinued operations reporting would be required in the parent company financial statements. If these criteria are not met from the perspective of the parent, the parent company would report its share of the subsidiary’s discontinued operations in the income statement line used for parent’s share of the unconsolidated subsidiary’s earnings or losses.
It is rare that the conclusion of whether a disposition meets the criteria for discontinued operations presentation would be different in parent company financial statements from the consolidated financial statements.

31.5.4 Cash dividends received from subsidiaries

As discussed in FSP 31.4.2, the parent’s subsidiaries are treated similar to equity method investments in the parent company financial statements, including the statement of cash flows. Cash dividends received from subsidiaries should be classified within operating activities or investing activities on the statement of cash flows, depending on whether they are a return on investment or a return of investment. This determination should be made according to the parent company’s policy on distributions received from equity method investees (cumulative earnings approach or nature of the distribution approach). Refer to FSP 6 for further discussion of the presentation of dividends received in the statement of cash flows.
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