The SEC and FASB has recommended that a parent corporation should consolidate the financial statements of the subsidiary into its financial statements when it exercises control over the subsidiary, even without majority ownership. In which of the following situations would control NOT be evident?
A) Access to subsidiary assets is available to all shareholders.
B) Dividend policy is set by the parent.
C) The subsidiary does not determine compensation for its main employees.
D) Substantially all cash flows of the subsidiary flow to the controlling shareholders.

Question

Quizplus · Accepted Answer

Access to subsidiary assets being available to all shareholders does not necessarily constitute control by the parent corporation. Control is determined by the ability to make or influence significant decisions related to the subsidiary's operations and financial policies. The other options (B, C, and D) indicate factors that would indicate control by the parent corporation.

The SEC and FASB Has Recommended That a Parent Corporation