6. Unconsolidated Entities
The APC [Accounting Policy Committee] has considered and expresses below its opinions on a number of specific issues affecting financial accounting standards and financial reports. The APC believes that the following [item] should be included in the single body of accounting concepts, standards, principles and methods: [RMA90, p. 5]
Lenders find consolidated financial statements useful in presenting an overview of the total economic resources controlled by the shareholders of a single (parent) corporation. However, consolidating statements are essential to lenders who must be able to assess the financial capabilities of each individual legal entity within the group. [RMA90, p. 7]
Consolidated financial statements should include all subsidiaries controlled by the parent. Other investments should be recorded at cost. Foreign subsidiaries must have their accounts adjusted to United States GAAP and their amounts translated into U.S. dollars prior to consolidation. Separate financial statements of foreign companies are most useful when: (1) they are expressed in U.S. dollars, and (2) they include a schedule that reconciles the financial effects of the foreign GAAP either to U.S. GAAP or to standards promulgated by the International Accounting Standards Committee (IASC). [RMA90, p. 7]
__________
[Context] Meeting of the Investor Discussion Group on October 16, 1992. During the discussion on the types of information investors use and the way they use that information to achieve their objectives, one investor made a comment on unconsolidated entities.
Participant I-9
One thing for the committee to consider on the previous question. Look at the "other income" line of the company going forward. You're going to have joint ventures and a more complex world. The "other income" line was set up to net interest income and interest expense and when you put [names deleted] and all these deals in there, this line can go from $10 to $200 million in 3 years and it's not adequately reported now. [Also included in 1(b) and 5(a)] [TI 10/16, p. 51]
[Context] Meeting of the Investor Discussion Group on December 9, 1992. Part of the meeting was devoted to the topic of unconsolidated entities.
Committee/Staff/Observer
Our next few questions relate to unconsolidated entities. By unconsolidated entities we mean investments in (1) companies that are not subsidiaries, (2) joint ventures, and (3) partnerships that are not consolidated. Currently, in the U.S., most investments in unconsolidated entities are accounted for using the equity method. As you know, under that method, the investment and the investor's share of earnings or losses from the investment is shown in the balance sheet and the income statement as single amounts. In most cases, additional information about the investee's results and financial position are provided in notes to the investor's financial statements; the quantity of information depends on the significance of the investment. [TI 12/9, p. 31]
The meeting materials identified and illustrated two other ways for accounting for investments in unconsolidated entities: (1) proportionate consolidation, and (2) expanded equity method. [TI 12/9, p. 32]
Assuming that the information in the notes to the financial statements remains the same as current practice, our question is: which display method, current practice, expanded equity, or proportionate consolidation, would you favor for investments in unconsolidated entities? Does your answer depend on the types of investments or on the degree to which the investee's operations are integrated into those of the investor? [TI 12/9, p. 32]
Participant I-11
Proportionate consolidation ranks right there in my mind with computing per-share data on segments. I don't know what those numbers mean; I don't think anybody knows. The expanded equity method is a more useful way of showing that information. [TI 12/9, p. 32]
Participant I-8
I second the motion. [TI 12/9, p. 32]
Committee/Staff/Observer
There is a general negative reaction for proportionate consolidation? [TI 12/9, p. 32]
Group
Yes. [TI 12/9, p. 32]
Committee/Staff/Observer
Why? [TI 12/9, p. 32]
Participant I-8
Meaningless number in my mind. [TI 12/9, p. 32]
Participant I-5
You lose information with proportionate consolidation. For example, do they have $54 million of cash they could spend or $41 million? [TI 12/9, p. 33]
Committee/Staff/Observer
Expanded equity is a better method than the equity method? [TI 12/9, p. 33]
Participant I-8
Yes, you're bringing information from the notes to the financial statements so you see it right away. [TI 12/9, p. 33]
Committee/Staff/Observer
It's better but it really is not necessary, is it? [TI 12/9, p. 33]
Participant I-8
No, you have it in the notes. [TI 12/9, p. 33]
Committee/Staff/Observer
Anybody feels this area of unconsolidated entities is a major problem? [TI 12/9, p. 33]
Participant I-7
Only when we're not getting the information. In my industry, joint ventures are becoming "de rigueur". What we're beginning to see in the annual report is, for example in the case of [name deleted], a disclosure that they have joint ventures with companies which have total sales of over $2 billion. What's in that? We need some more information; all I have is $2 billion. [TI 12/9, p. 33]
Participant I-6
I would also plead for more information. Too many of my companies have equity line items in the financial statements which probably average $10-$20 million a year, but that's probably one company making $30 million and the other three losing $10 million. So you really have no idea of what's in there and there's no way of forecasting it. In the footnotes, every single company in the equity line item should be broken out with a condensed balance sheet and income statement. [TI 12/9, p. 33]
Participant I-12
I think materiality is an important question here. If [name deleted] had to disclose every single one of its minority-held investments, it would go on for pages and would give me no incremental value. That particular line item for most companies I cover might consist of anywhere from 3 to 24 companies and is not even material in the overall context of the balance sheet or the income statement or the net income line. From a materiality viewpoint, the cost-benefit doesn't seem to work out. My concern is that, with the growth of joint ventures and minority-held operations, we're approaching the Japanese model which I find a bit frightening. So we need some disclosure, I just don't know what the right disclosure is. [TI 12/9, p. 34]
Participant I-4
In some cases, it's not very clear the nature, not only the profitability, of the unconsolidated entities (joint ventures, general partnerships, etc.). And where they're all lumped together, it's incredibly misleading. [TI 12/9, p. 34]
Participant I-7
At a very minimum, there should be a clear distinct separate line item called equity income. Most of my companies fold the equity income in the "other income" account. [Also included in 5(a)] [TI 12/9, p. 34]
Participant I-12
In some companies, I've found that the other income line is the second largest revenue line, and in some the largest, and it's shown at the very bottom. So we know there's something in there of some order of magnitude, but the company is not breaking that out. The same goes for the "other expense" line. [Also included in 5(a)] [TI 12/9, p. 34]
Participant I-9
It hasn't been an area of great concern in my industries in the past, but it could be in the future. There's been a trend of little companies that are taking 10-15% interest in private companies with the option to buy part or all of it in the future. They're doing this to keep the losses off their income statement. It's something that's coming; so I think the accounting profession needs to look at it harder than they have in the past. [TI 12/9, p. 34-35]
Committee/Staff/Observer
It seems to me that you clearly want either the current equity method or the expanded equity method, not the proportionate method, and with more information in the notes. [TI 12/9, p. 35]
Participant I-8
But the materiality aspect has to be taken into account. [TI 12/9, p. 35]
Participant I-6
But are we talking about materiality of everything lumped into one? [TI 12/9, p. 35]
Participant I-8
Each specific one. [TI 12/9, p. 35]
Committee/Staff/Observer
Currently, SEC regulations require disclosure of the full financial statements of an investee if the investment meets the size criterion. If investments in unconsolidated entities do not meet the size criterion but are still significant in the aggregate, certain summarized information is provided, as listed on page 11 of the meeting materials. Do you find the current disclosure of information about unconsolidated entities acceptable? If not, what information, in addition to the information currently provided, would you use? [TI 12/9, p. 35]
Participant I-6
I would like more information. I have companies that have to disclose that information, but it just starts you down the trail of asking for more information. [TI 12/9, p. 35]
Committee/Staff/Observer
Do you have a problem with the 20% level? Would you like to see it lowered? [TI 12/9, p. 35]
Participant I-6
Yes, I would like to see it lowered. I would like the same definition of materiality used as in other issues, which is a lot lower. [TI 12/9, p. 36]
Participant I-4
I would agree with [participant I-6]; the 10% number is probably a better benchmark. I have found historically that this is the area where there is abuse in the sense of moving earnings in and out, smoothing things out, in these lines. The greater amount of disclosure, the greater the attempt would be made to understand it. [TI 12/9, p. 36]
Participant I-5
I want to concur with a lower level than 20%. [TI 12/9, p. 36]
Participant I-12
If a company gets up to a 20% level, usually that's sufficiently material. I don't see any reason to lower it. [TI 12/9, p. 36]
Committee/Staff/Observer
I didn't mean the 20% test for using the equity method; I meant the other 20% test for disclosure of information where you are on the equity method. [TI 12/9, p. 36]
Committee/Staff/Observer
I think [participant I-4] understood that and he is in favor of more disclosure with a lower threshold. [TI 12/9, p. 36]
Participant I-4
Yes. [TI 12/9, p. 36]
Committee/Staff/Observer
[Participant I-6] suggested more information, I would like to clarify that. What additional information do you want? [TI 12/9, p. 36]
Participant I-6
A full set of financial statements and production data! [TI 12/9, p. 36]
Committee/Staff/Observer
Let's assume the threshold for each investee is lower than 10%. Do you really mean that you would want a complete set of financial statements? [TI 12/9, p. 37]
Participant I-6
Yes, they could be in the footnotes but I would like a full set of financial statements. If management says it's a meaningful part of the company, I would like to understand why management thinks so and be able to evaluate over the years whether those are good investment decisions. We also have specific examples like [name deleted] where they use equity accounting to hide major portions of details on those operations. [TI 12/9, p. 37]
Participant I-4
I agree. There is also the question of annual comparability in these areas too; changes in the investments and in the joint venture line. [Also included in 2(c)] [TI 12/9, p. 37]
Committee/Staff/Observer
I presume you also want some discussion of the operations in addition to quantitative information. [TI 12/9, p. 37]
Participant I-6
Yes, but again subject to materiality. Something that would also be helpful would be a list of everything that's in the equity line. It doesn't have to be in the annual report; maybe it could be an exhibit that you could call and ask for if you really care about it. The key point is that the make-up of that line item changes over time dramatically and if you're looking at 5 year disclosure, it's not unimaginable that 80% of the make-up has changed in that 5 year period. [Also included in 5(a)] [TI 12/9, p. 37]
Participant I-7
The information that we're looking for could be issued as part of the 10-K rather than the annual report because companies are increasingly complaining about the cost of their annual report. [Also included in 5(a)] [TI 12/9, p. 37]
Participant I-6
It could be in the 10-K or in the exhibit to the annual report, but I think that we need more than just that one line item in the annual report. [Also included in 5(a)] [TI 12/9, p. 38]
Committee/Staff/Observer
I think the comments so far have been based on unconsolidated entities who trigger the disclosure hurdle, whether it's 20% or 10%. For other entities that do not trigger the hurdle individually but do in the aggregate, we currently have aggregate disclosure to be made. Do you find the aggregated information helpful? [TI 12/9, p. 38]
Participant I-6
The only thing that I find it helpful for is to remind me to ask management about it and I'm usually told it's not material. [TI 12/9, p. 38]
Participant I-4
I think it's helpful if you know through other sources, mainly management, what's in it. [TI 12/9, p. 38]
Committee/Staff/Observer
It seems to me that the answer to [the] question is that it's meaningless in the aggregate unless you get the breakdown. [TI 12/9, p. 38]
Participant I-5
But there's some value to having it in there. [TI 12/9, p. 38]
Participant I-8
It's obviously better than nothing. [TI 12/9, p. 38]
Participant I-4
Well, I'm not so certain about that. I think it can be very misleading if you don't know what is in there. [TI 12/9, p. 38]
Participant I-12
It triggers the "red alert" sign. We all have our red alert button and if you see some numbers that look strange, it triggers that button. [TI 12/9, p. 39]
Participant I-6
I think what [participant I-4] might be saying is that it may not be meaningful because it's not comparable and it may be misleading because the current disclosure gives you a sense of security that you shouldn't have. [Also included in 2(c)] [TI 12/9, p. 39]
Participant I-4
That's basically right; you can compare unlike entities and think they are similar. [Also included in 2(c)] [TI 12/9, p. 39]
Participant I-9
What I would suggest is something like segment accounting where you list the affiliates, the ownership, the sales, the earnings, the debt equity ratio, and leave it then to the analyst to follow up and ask the relevant questions if that triggers some interest. [TI 12/9, p. 39]
Participant I-12
One of the things that worries me is, 5-7 years ago, there was a company that had a 15% interest in some subsidiary but it basically pledged its balance sheet and its full resources to that subsidiary and ended up going bankrupt because of a problem in this minority-owned operation. In general, that's a rare instance because there are usually enough other factors that we would see. But I think that kind of situation, instances where the whole company is at stake, needs to be revealed. [Also included in 10(d)] [TI 12/9, p. 39-40]
Participant I-8
There is a current disclosure requirement on contingent liabilities; I would think that situation would be covered. [Also included in 10(d)] [TI 12/9, p. 40]
Committee/Staff/Observer
It's hard for me to believe that if the investor company had somehow signed its life away and had this contingency, that there wouldn't be some disclosure. [Also included in 10(d)] [TI 12/9, p. 40]
Committee/Staff/Observer
All the disclosures we are talking about are triggered in the first instance when an investor has a 20% or more interest in another entity. Are any of you concerned about disclosure of information when the % interest is 19%, for example? In that case, there is nothing disclosed; the investment is carried at cost, there is no supplemental financial statements or additional information required about the investment. [TI 12/9, p. 40]
Participant I-4
The question is at what point do you feel comfortable. This is just a qualitative question about materiality. [TI 12/9, p. 40]
Committee/Staff/Observer
You could have a 19% investment that could have a more significant impact on the company than a 30% investment in a small entity. [TI 12/9, p. 40]
Participant I-6
I would look at it a little bit differently. One of the things that's important to me is earnings, much more than cashflows. When you're equity accounting, it affects my earnings; when you use cost accounting, the only thing that is going to affect my earnings is the receipt of cash in the form of dividends. If we want to change that threshold level, I would much rather change it to having cost accounting for investments up to 50% and have only cash affect my earnings. I am a bit drastic, but the magic number is not 19% or 20% but rather what happens to earnings. [TI 12/9, p. 41]
[Context] Meeting of the Investor Discussion Group on March 17, 1993. Part of the meeting was devoted to the topic of priority of improvements needed in external reporting. During the discussion, a comment was made on unconsolidated entities.
Participant I-11
Interim reporting, accounting for financial instruments, and unconsolidated entities [are my priorities] and there I favor the expanded equity method. [Also included in 15] [TI 3/17, p. 66]
[Context] Responses to the postmeeting questionnaire to the December 8, 1992 Creditor Discussion Group meeting.
QUESTION 9
Currently, in the U.S., most investments in unconsolidated entities (20-50% ownership interests) are accounted for using the equity method. Under this method, the investment is shown in the balance sheet of the investor as a single amount. Likewise, the investor's share of earnings or losses from its investment is ordinarily shown in the consolidated income statement as a single amount. In most cases, additional information about the investee's results and financial position are provided in notes to the investor's financial statements.
There are at least two other ways that have been proposed for accounting for investments in unconsolidated entities:
Proportionate consolidation: The investor records its proportionate interest in the investee's assets, liabilities, revenues, and expenses on a line-by-line basis and combines the amounts directly with its own assets, liabilities, revenues, and expenses, and those of its consolidated subsidiaries. For example, if the investor owns 30% of an incorporated joint venture, 30% of the cash balance would be added to the group's cash balance, and similarly for 30% of all of the investee's assets, liabilities, revenues, and expenses.
Expanded equity method: The investor's share in the total current and noncurrent assets and liabilities and in the total revenues and expenses is displayed separately from the consolidated assets, liabilities, revenues, and expenses in the consolidated financial statements. The subtotals would be labeled appropriately (for example, "Current Assets of Investee") and would be added to the investor's totals. This reporting method is a compromise between the "one-line" display under the equity method and the combined display of the investor's and the investee's assets, liabilities, revenues, and expenses required under the proportionate consolidation method.
Assuming that, under the equity method, the information in the notes to the financial statements remains the same as current practice, which display method (equity, proportionate consolidation, or expanded equity) would you generally favor for investments in unconsolidated entities?
EXPANDED
EQUITY PROPORTIONATE EQUITY
a. Investment in operations over
which the investors share
control-that is, no single
investor controls the operations
(unincorporated joint ventures) 7 2 6
b. Investments in companies over
which the investors share control-
that is, no single investor
controls the company
(incorporated joint ventures) 8 2 5
c. Partnerships in which the partners
share control-that is, no single
partner controls the partnership 7 2 6
d. Investments in companies over
which the investor has
"significant influence" (the
basis for using the equity
method in APB Opinion 18). 5 2 8
e. Would your answer(s) also depend
on whether the investee's
operations were or were not
integrated with or otherwise
related to the investor's operations?
9 _ YES
8 _ NO
Participant C-3 - I find the expanded equity method a little confusing to the casual reader. Also, it gives management a potential "loophole" in avoiding the more relevant "proportionate" disclosure. Thus, if we're going to recommend a change, I'd make it consistent. Go with proportionate.
Participant C-15 - [W]e often encounter situations where even a less than 50% owned entity could have significant impact on "parent" company because of keep well agreements, etc. The analysis of these entities is subjective and frequently we ask for full disclosure of financials.
Participant C-4 - Yes, if significant interco transactions, prefer expanded equity. Also, prefer expanded equity if the investment includes a guarantee of debt of investee or if investors are in any way liable (partnership).
Participant C-11 - I do not like proportional or expanded equity. If the entity is significant or material, I want separate, complete financials in the footnotes.
[PMQC 12/8, p. 21-23]
__________
QUESTION 10
Currently, SEC regulations require disclosure of the full financial statements of an investee (as part of the consolidated financial statements) if the investment meets a size criterion (broadly, if the investor's share in the total assets or the income of the investee exceeds 20% of the investor's consolidated assets or income). If investments in unconsolidated entities do not meet the size criterion but are still significant in the aggregate, the following summarized information must be provided:
Current and noncurrent assets and liabilities
Interests of the other investors
Redeemable stock
Net sales or gross revenues
Gross profit or loss (or cost and expenses applicable to net sales or gross revenues)
Income or loss from continuing operations before extraordinary items and cumulative effect of a change in accounting principle
Net income or loss
a. Would your answer(s) to QUESTION 9 change if you received detailed information about an investee in notes to the financial statements?
6 _ YES
9 _ NO
Participant C-13 - Probably - depends on degree of detail.
b. If detailed information is reported in notes, would you be indifferent about which of the three reporting methods is used in the financial statements?
9 _ YES
7 _ NO
Participant C-3 - If it's important, put it in the financials. Disclosures in footnotes should not be an alternative to proper accounting.
Participant C-12 - I still don't like proportionate.
Participant C-11 - I think the inclusion of such data in the financial statements can be misleading.
Participant C-2 - Except I do not favor proportionate consolidation - it obscures the financial position of the investor.
Participant C-13 - Subject to above. Consolidating statements would be best detail.
c. Is the current disclosure of information about unconsolidated entities acceptable?
YES NO
5 11
If NO,:
Would you want the full financial statements
of all unconsolidated entities? 7 3
If only summarized information is available,
what information, in addition to the information
currently provided (as listed above), would
you want?
Participant C-3- The companies I follow have unconsolidated investments, but the results of those entities are not "significant" enough to warrant disclosure. Understanding the nature and extent of investments in less than 20% entities goes a long way in helping to evaluate the consolidated company's future cash flow/earnings potential, since these investments can be sold and gains recognized. Accordingly, I would like disclosure in the aggregate, of investments in unconsolidated entities if the sale of this and investments, in the aggregate, could be material to net income.
Participant C-15 - Rev's - Oper Inc - deprec - Int exp
Current Assets - Pt profits - PPE - Goodwill - Cash and equiv - A/R - Inventories
Current Liabilities - (incl STD) A/P - LTD - Def. taxes - Equity
Participant C-10 - Cash flow available to investor company.
Participant C-12 - Overkill.
Participant C-4 - Only if unconsolidated entity is hiding a significant off balance sheet liability or if the equity investment represents a substantial portion of the net worth of the investor. Full balance sheet disclosure, particularly current asset and liability accounts breakdown.
Participant C-8 - Interest bearing debt.
Participant C-11 - The question comes down to what is significant. This can be relative to results, cash flow or the key balance sheet items. In other words, the answer can be company specific.
Participant C-16 - CA/CL/FA/LTD/CPLTD
Sales/GM/OP Income/NPBT
Gross/Net Cash Flow
Participant C-2 - IF the disclosures are provided, they are generally sufficient for analysis purposes. Additional questions or concerns can be addressed to the borrower directly.
Participant C-13 - Consolidating. Cash flow data, particularly cash flows between the unconsolidated entities.
[PMQC 12/8, p. 23-25]
[Context] Responses to the postmeeting questionnaire of the December 9, 1992 and January 13, 1993 Investor Discussion Group meetings.
At the December 9, 1992 meeting, we discussed three approaches that have been proposed for accounting for investments in unconsolidated entities:
Equity method, which is currently used for accounting for most investments in unconsolidated entities
Expanded equity method
Proportionate consolidation.
A brief description of each method was provided on pages 9-10 of the reporting materials for the December 9, 1992 meeting; an example of each reporting method was provided on pages 12-13.
QUESTION 6
a. Assuming that, under the equity method, the information in the notes to the financial statements remains the same as current practice, which display method (equity, proportionate consolidation, or expanded equity) would you generally favor for investments in unconsolidated entities?
Equity Proportionate Expanded Equity
Investment in 3 1 3
operations over which
the investors share
control--that is, no
single investor controls
the operations
(unincorporated joint
ventures)
Investments in 3 2 2
companies over which the
investors share
control--that is, no
single investor controls
the company
(incorporated joint
ventures)
Equity Proportionate Expanded Equity
Partnerships in which 3 1 3
the partners share
control--that is, no
single partner controls
the partnership
Investments in 2 3 2
companies over which the
investor has
"significant influence"
(the basis for using the
equity method in APB
Opinion 18)
Participant I-12: Current practice is fine, although the expanded equity method might help clear up the sources of revenues and expenses. Control- or lack thereof- and relative impact on income statement are key factors.
Participant I-9: Almost all of my work would be with incorporated joint ventures.
b. Would your answer(s) also depend on whether the investee's operations were or were not integrated with or otherwise related to the investor's operations?
Yes 2 No 5
If YES, in which way?
Participant I-11: If the investee was in a substantially identical line of business and generally viewed by outsiders as part of/related to the investor. I recognize that usually this will be a situation that meets the "significant influence" standard- but perhaps not always.
Participant I-12: The investee provides a critical product/service or the investor extended guarantees of any sort with regard to the investee.
[PMQI 12/9 and 1/13, p. 8-9]
QUESTION 7
Currently, SEC regulations require disclosure of the full financial statements of an investee (as part of the consolidated financial statements) if the investment meets a size criterion (broadly, if the investor's share in the total assets or the income of the investee exceeds 20% of the investor's consolidated assets or income). If investments in unconsolidated entities do not meet the size criterion but are still significant in the aggregate, the following summarized information must be provided:
Current and noncurrent assets and liabilities
Interests of the other investors
Redeemable stock
Net sales or gross revenues
Gross profit or loss (or cost and expenses applicable to net sales or gross revenues)
Income or loss from continuing operations before extraordinary items and cumulative effect of a change in accounting principle
Net income or loss.
a. Would your answer(s) to QUESTION 6 change if you received detailed information about an investee in notes to the financial statements?
Yes 1 No 6
Participant I-12: This question involves the issue of a "portfolio" of investments- aggregation might be very important here.
If YES, in which way?
Participant I-11: To the extent to which detailed information is included in the notes, simple equity calculation on the face of the balance sheet would be adequate.
b. If detailed information is reported in notes, would you be indifferent about which of the three reporting methods is used in the financial statements?
Yes 4 No 2
If NO, please explain
Participant I-11: Proportionate is worthless.
Participant I-12: Again- issue of "portfolio"- may be more important for small companies with few such investments. Individual investee information could be incredibly cumbersome for large companies.
c. Is the current disclosure of information about unconsolidated entities acceptable?Participant I-9: This seldom comes up as a practical matter on the stocks that I follow. On occasion, it does as with [name deleted] which inflated earnings by excluding unconsolidated new ventures recording losses - i.e. it is a potential area of abuse in some companies.
If NO:
Would you want the full financial statements of all unconsolidated entities?
If only summarized information is available, what information, in addition to the information currently provided (as listed above) would you want?
Participant I-7: only meaningful information Participant I-8: 1) Significant cash flow items, 2) any guarantees of debt or otherwise Participant I-11: SG&A; pretax income; extraordinary items; receivables; inventories; intangibles; composition of current liabilities; nature of non current liabilities Participant I-6: Revenue and operating profit by segment or products Participant I-12: Just material (vis-a-vis income statement or balance sheet risk) entities -- key sources of revenues and expenses
[PMQI 12/9 and 1/13, p. 10-12]
__________
[One analyst commented on the] following regarding her approach to securities analysis and financial reporting in general: [Also included in 1(a), 1(b), 5(c), and 15] [BEAR STEARNS, p. 3]
It would be helpful if nonhomogeneous (e.g., finance) subsidiaries were disaggregated from the consolidated financial statements. [Also included in 1(b) and 15] [BEAR STEARNS, p. 3]
__________
From what has briefly been described of the [foreign] financial analysts' work, there results a series of requirements with regard to accounting data, which are but insufficiently met at present. We have broken them down into . . . major categories. [Also included in 1(b), 2(c), 2(d), 4, 5(a), 5(c), 8(a), 9, 11(b), 11(c), and 15] [BETRIOU, p. 1]
It is likely that the objectives of all accounting data users do not coincide. As far as they are concerned, [foreign] financial analysts essentially need data which reflects the economic reality of entities they examine (groups or companies). Further progress is still required and we have broken this down into . . . categories: [Also included in 1(b), 4, 5(a), 8(a), 9, and 15] [BETRIOU, p. 3]
[G]enerally, from the [foreign] financial analysts' viewpoint, seeking economic meaning seems to have to prevail on strictly legal considerations. This principle would lead to setting up consolidated accounts for example in cases when the percentages of shares held do not formally require it. Combinations meant to artificially improve the balance sheet ratios would thereby become transparent. [Also included in 1(b) and 15] [BETRIOU, p. 3]