1.3 Intercompany Matters With Noncontrolling Interest Implications
Noncontrolling interests arise because a parent and its subsidiaries represent
separate and distinct legal entities. Accordingly, each legal entity may separately
prepare its own set of financial statements. Through the consolidation process, the
financial statements are combined to present the parent and its subsidiaries as if
they were a single economic entity. In recognition of their separate identities, it
is possible for a parent and its subsidiaries to have different fiscal-year-end
dates, the presence of which must be considered in the preparation of consolidated
financial statements (see Sections
4.2 and 4.2.1).
While the separate financial statements of a parent and its subsidiaries must
reflect the changes in each entity’s financial position as a result of intercompany
transactions (see Section
4.3.1) and intercompany ownership interests (see Section 4.3.2), such
transactions and ownership interests must be eliminated in consolidation so that the
consolidated financial statements are presented as if the parent and its
subsidiaries were a single economic entity. The process of eliminating such
transactions and ownership interests can be more complex in circumstances involving
noncontrolling interests.