Financial reporting of "significant-influence" equity investments: analysis and managerial issues.: An article from: Journal of Managerial Issues
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ISBN / ASINB00098ZRLK
ISBN-13978B00098ZRL7
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This digital document is an article from Journal of Managerial Issues, published by Pittsburg State University - Department of Economics on September 22, 1999. The length of the article is 5967 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.
From the author: Concern over financial reporting and analysis of equity investments in noncontrolled entities has existed for decades. Generally accepted accounting principles (GAAP) call for reporting these investments by the equity method of Accounting Principles Board Opinion 18 when an investor has significant influence over an investee, including jointly-controlled ventures. By suppressing investee liabilities, the equity method contributes to off-balance-sheet financing. This study contrasts the information provided by proportionate consolidation, the expanded equity method and the conventional equity method for reporting and analyzing significant-influence equity investments. We evaluate whether these methods facilitate sound ratio approaches to assessing an entity's profitability, short-term liquidity risk and long-term solvency risk. Moreover, managers should be aware of the information implications of their financial statement disclosures. The study recommends replacing the equity method with proportionate consolidation when an investor and investee are operationally related; other significant-influence investees are best reported by the expanded equity method.
Citation Details
Title: Financial reporting of "significant-influence" equity investments: analysis and managerial issues.
Author: Michael L. Davis
Publication:Journal of Managerial Issues (Refereed)
Date: September 22, 1999
Publisher: Pittsburg State University - Department of Economics
Volume: 11 Issue: 3 Page: 280(1)
Distributed by Thomson Gale
From the author: Concern over financial reporting and analysis of equity investments in noncontrolled entities has existed for decades. Generally accepted accounting principles (GAAP) call for reporting these investments by the equity method of Accounting Principles Board Opinion 18 when an investor has significant influence over an investee, including jointly-controlled ventures. By suppressing investee liabilities, the equity method contributes to off-balance-sheet financing. This study contrasts the information provided by proportionate consolidation, the expanded equity method and the conventional equity method for reporting and analyzing significant-influence equity investments. We evaluate whether these methods facilitate sound ratio approaches to assessing an entity's profitability, short-term liquidity risk and long-term solvency risk. Moreover, managers should be aware of the information implications of their financial statement disclosures. The study recommends replacing the equity method with proportionate consolidation when an investor and investee are operationally related; other significant-influence investees are best reported by the expanded equity method.
Citation Details
Title: Financial reporting of "significant-influence" equity investments: analysis and managerial issues.
Author: Michael L. Davis
Publication:Journal of Managerial Issues (Refereed)
Date: September 22, 1999
Publisher: Pittsburg State University - Department of Economics
Volume: 11 Issue: 3 Page: 280(1)
Distributed by Thomson Gale
