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"I don't know if a million companies are using the bright-line rule to their advantage, or just one," says Joe B.Hoyle, CSX Professor of Management and Accounting at the University of Richmond and author of an advanced accounting textbook that covers consolidated financial statements extensively.THE MEANING OF CONTROL The issue of when a subsidiary is sufficiently controlled by a parent to merit consolidated financial reporting goes back many years (see "A History of Consolidation Policy," below).
"No matter how carefully they draft the rules," he says, "loopholes will be found by those seeking to circumvent their spirit and intent.
Adding his criticism, SEC Chairman Arthur Levitt recently said, "Too many corporate managers, auditors and analysts are participants in a game of nods and winks.
In the zeal to satisfy consensus earnings estimates and project a smooth earnings path, wishful thinking may be winning the day over faithful representation." There is a wide diversity of opinion on when and if one company "controls" another and how FASB should respond to renewed pressure to create standards that will improve financial reporting and provide CPAs with better guidance.
ithin a charged political atmosphere, the Financial Accounting Standards Board issued a revised exposure draft to clarify consolidation policy after its 1995 ED failed to obtain board approval.
This effectively rekindles controversy fueled by critics of existing FASB guidance—particularly in-vestor advocates—who have been strident in their complaints about the poor quality of quarterly corporate earnings reports.
It has been an arduous process, says Bossio, one he describes as "grinding." Jack Albert, associate to the SEC chief accountant, which has oversight responsibility for FASB, calls the push for a new ED "a work in progress," but adds, "it's safe to assume implementation guidance will be coming." Under the rule CPAs currently follow, commonly called the bright-line rule, the condition for a controlling financial interest is ownership of a majority voting interest--unless control is temporary or does not rest with the owner of the majority voting interest. 94, , doesn't define control, temporary or otherwise.