4.1 Introduction

A parent-subsidiary relationship may give rise to complexities, particularly when a subsidiary is not wholly owned by its parent. This is because the purpose of consolidated financial statements is to present a parent and its subsidiaries as if they were a single economic entity, which is appropriate since the parent-subsidiary relationship itself arises out of the parent’s presumed ability to control the activities and transactions of its subsidiaries. However, when a subsidiary is not wholly owned by its parent, certain situations may challenge the parent’s ability to easily present its financial statements as if the parent and its subsidiary were a single entity.