Generally Accepted Accounting Principles
in the United States

ARB No. 51
Accounting Research Bulletin (ARB) No. 51
        a.  Consolidated Financial Statements
        b.  Issued in August 1959
        c.  ARB No. 51:  Amended by SFAS No. 94, October 1987.

 Consolidated statements
           Consolidated statements are more meaningful
           --> than separate statements.

           Consolidated statements are necessary
           --> when one of the companies has
                 a controlling financial interest in other companies. 

 General rule of controlling financial interest
           --> Ownership of majority voting interest
           --> Ownership of over 50% of outstanding voting shares

 Exceptions to general rule
        a.  Control does not rest with the majority owner
               (Significant doubt on the parent's ability to control the subsidiary)
        b.  Minority interest in the subsidiary is large.
        c.  Foreign subsidiaries.
        d.  Non-homogeneous operations
                (Parent company in manufacturing and
                 a subsidiary in banking or insurance industry)

 Exceptions b, c and d
           --> eliminated by SFAS No. 94.
               
 Difference in fiscal periods
           (between parent and a subsidiary)
           --> not a justification for the exclusion of a subsidiary.

 Difference in fiscal periods is more than 3 months
           --> Subsidiary's statements are prepared for the parent's fiscal period.

 Difference in fiscal periods is not more than 3 months
           --> Subsidiary's statements are acceptable for consolidation.

           The effect of (material) events
                 during the intervening period
           --> should be disclosed.

SFAS No. 94
Statement of Financial Accounting Standards (SFAS) No. 94
        a.  Consolidation of All Majority-Owned Subsidiaries
        b.  Issued in October 1987
        c.  SFAS No. 94 amends ARB No. 51, APB Opinion No. 18 and ARB No. 43 (Ch. 12).

 General rule of controlling financial interest (ARB No. 51)
           --> Ownership of majority voting interest
           --> Ownership of over 50% of outstanding voting shares

 Exceptions to general rule (ARB No. 51)
        a.  Control does not rest with the majority owner
               (Significant doubt on the parent's ability to control the subsidiary)
        b.  Minority interest in the subsidiary is large.
        c.  Foreign subsidiaries.
        d.  Non-homogeneous operations
                (Parent company in manufacturing and
                 a subsidiary in banking or insurance industry)

 SFAS No. 94
           --> keeps exception a.
           --> eliminates exceptions b, c and d.

 Consolidation of a majority-owned subsidiary is required (by SFAS No. 94)
           even if
           --> a subsidiary's minority interest is large
           --> a subsidiary is a foreign company
           --> a subsidiary operates in a heterogeneous industry