Furthermore, consolidation may be required by individual member states where
there is a shareholding and a dominant influence or unified management in practice.
Some of the options available to the EU member states are:
- Group corporations may include those managed on a unified basis or dominantly
influenced. - Requirements to consolidate may be restricted to parents that are corporations.
- Financial holding corporations may be exempted.
- “Small groups” may be exempted from consolidation, except listed corporations.
- EU groups may be exempted if owned by non-EU parents that prepare “equiv-
alent” accounts. - Exclusion of subsidiaries from consolidation is permitted on the basis of imma-
teriality, long-term restrictions, expense, or delay. - Pooling of interests accounting is permitted.
- Proportional consolidation is permitted.
(iv) United Kingdom. Requirements for consolidated financial statements in the
United Kingdom conform to the Seventh Directive. The statutory requirements are
contained in the Companies Act of 1985 as amended by Companies Act of 1989. The
accounting requirements are contained in the Accounting Standards Committee
SSAP1, “Accounting for Associated Companies,” as amended by the Accounting
Standards Board Interim Statement “consolidated Accounts” and by the Accounting
Standards Board Financial Reporting Standard FRS2, “Accounting for Subsidiary
Undertakings.
(v) Japan. The Securities and Exchange Law requires listed companies, over-the-
counter traded companies, and companies that have filed registration statements in
the past under the Securities and Exchange Law to prepare both parent-company-
only statements and consolidated financial statements. A subsidiary is defined as a
corporation in which a parent has direct or indirect ownership of a majority voting
interest by standards issued by the Business Accounting Deliberation Council. Sub-
sidiaries are not to be consolidated if (1) control does not rest with the majority
owner, (2) the subsidiary is not a going-concern enterprise, or (3) control is tempo-
rary. Subsidiaries would also be excluded from consolidation if the result would mis-
lead readers of the consolidated financial statements. Subsidiaries could also be ex-
cluded from consolidation if they are so immaterial that exclusion for the
consolidated statements would not prevent reasonable judgement on financial posi-
tion or operating results of the group of consolidated companies. This excluded sub-
sidiary would generally be accounted for by the use of the equity method.
(vi) International Accounting Standards. International Accounting Standards Com-
mittee IAS No. 27, “Consolidated Financial Statements and Accounting for Invest-
ments in Subsidiaries,” requires full consolidation of all subsidiaries, with the fol-
lowing exceptions:
1.A parent is exempted from presenting consolidated financial statements if it is
itself a wholly or virtually wholly owned subsidiary of a parent that presents
consolidated financial statements.18 • 10 CONSOLIDATED FINANCIAL STATEMENTS AND BUSINESS COMBINATIONS