As per AS 21, Consolidated Financial Statement (CFS) is required to be prepared only for a 'group' of enterprises under the control of a parent. R 723 (E) dated October 14, 2014 and introduced the Companies (Accounts) Amendment Rules, 2014.
As per the scope of AS-23 and AS-27 the application of equity method/proportionate method for consolidation of accounts of associate/ joint ventures respectively is required only when a company prepares consolidation under AS 21 The term ‘group’ has been defined in AS 21 as follows: The explanation to Section 129 (3) clearly states that for the purposes of this sub-section, the word “subsidiary” shall include associate company and joint venture Therefore, as per Section 129 of the Act, 2013 read with rules thereof, consolidation of financial statement is required in case a company is having subsidiary or associate or joint-venture company. As per the rule the consolidation requirement was exempted for a company not having subsidiaries but having associates or joint ventures (‘JVs’).
The equity at risk should be sufficient for the VIE to finance its activities without additional support.
A VIE’S PRIMARY BENEFICIARY TYPICALLY IS ABLE to make decisions about the entity and share in profits and losses.
There is another view which believes that CFS is not required if there is no subsidiary as Sec 129 requires consolidation to be done as per AS 21, but as per our view the applicability of CFS is governed by Sec 129 and not AS 21, AS 21 only prescribes the method once CFS is required to be done under any statute. However, the said exemption was only for the financial year 2014-15.
Accordingly, such companies come within the purview of consolidation from FY 15-16 onwards.
46 in January 2003 and a revised version in December 2003 to help companies decide whether to consolidate VIEs into their financial statements.
A VIE MUST BE CONSOLIDATED INTO THE FINANCIAL statements of the primary beneficiary company when it does not have enough equity at risk or its equity investors lack any of three characteristics of controlling financial interest.
The primary beneficiary is the reporting entity, if any, that receives the majority of expected returns or absorbs the majority of expected losses.
CPAs SHOULD RECONSIDER A DECISION ABOUT WHETHER an entity is a VIE if its situation changes so its equity investment at risk is no longer adequate, some or all of the equity investment is returned to investors or the entity undertakes additional activities, acquires additional assets or receives an additional equity investment that is at risk. 46(R) is causing reporting entities to make new decisions about whether affiliated entities need to be consolidated into their financial statements.
The practical result of the new rules is that many reporting entities are adding significant assets and liabilities to their balance sheets.
mong myriad accounting problems that led to the downfall of Enron was its use of variable interest entities (VIEs), allowing it to leave significant amounts of debt off its balance sheet.
AS 21 : Consolidation of Accounts Consolidate Financial Statements (CFS) Definition – Scope Definition of Control When one entity Directly or indirectly through subsidiary, owns more than 50% of the voting power.