How do the proposed Indian consolidated statements compare with those under US GAAP (generally accepted accounting principles)?
Under US GAAP, subsidiaries are consolidated on the basis of management control. For instance, even if a company has a 70 per cent stake in a subsidiary, but the minority shareholders have veto powers on financial matters or need to be consulted on budgetary and strategic decisions, consolidation may not be allowed. Such minority rights on financial matters are treated as participative in nature, and preclude the majority to exercise control over the company. Any transfer of benefits has to be reflected in the accounts. For instance, the transfer of 5 per cent of the principal stakeholder’s holding to employees as stock options might not have a direct impact on the company’s equity and financials, but still needs to be accounted for as an operating cost. Similarly, the true cost of advancing funds to an associate company at a lower rate of interest than what the money was raised at should be reflected in the latter’s books. The concept of pushing costs and benefits down to the subsidia
