Accounting Theory Research

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Accounting Theory Research Case

a. What alternative financial statement display formats did the FASB consider for the noncontrolling interest?

The Board considered three alternatives for displaying the noncontrolling interest in a subsidiary in the consolidated statement of financial position: as a liability, as equity, or in the mezzanine between liabilities and equity. The noncontrolling interest Exposure Draft proposed that the noncontrolling interest be presented in the consolidated statement of financial position within equity separately from the parent’s equity.

b. What criteria did the FASB use to evaluate the desirability of each alternative?

Based on the FASB Concepts Statement No. 6, Elements of Financial Statements, FASB use to evaluate the desirability of each alternative. Elements of Financial Statements, defines three elements of a statement of financial position: assets, liabilities, and equity (or net assets). If it required that the noncontrolling interest be reported in the mezzanine, the Board would have had to create a new element—noncontrolling interest in subsidiaries—specifically for consolidated financial statements. The Board concluded that no compelling reason exists to create a new element specifically for consolidated financial statements to report the interests in a subsidiary held by owners other than the parent. The Board believes that using the existing elements of financial statements along with appropriate labeling and disclosure provides financial information in the consolidated financial statements that is representationally faithful, understandable, and relevant to the entity’s owners, creditors, and other resource providers

c. In what specific ways did FASB Concept Statement 6 affect the FASB’s evaluation of these alternatives?

FASB Concepts Statement No. 6 explains that a liability embodies a present duty or responsibility to one or more other entities that entails settlement by probable future transfer...