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A Standard Setting Perspective on Current Issues Facing the Accounting Profession - page 10 / 29

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Defining the boundaries of the reporting entity: consolidation

Purpose of consolidated financial statements

Report financial position, results of operations and cash flows as if all the assets, liabilities and activities were held, incurred and conducted by a single entity with several branches or divisions (adapted from ARB 51)

Based on the concept of completeness => presenting all assets, liabilities and activities that are under control of a single management and governing board

Conclusion:  consolidate an entity when it is controlled by another entity

Problem:  control is not well defined in financial reporting.  

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