CENTRE MAY AMEND AS 21 TO PLUG GAPS IN ACCOUNTING PRACTICES

Accounting Standard 21 – which speaks of consolidated financial statements – gives holding companies the leeway of not showing the composite effect of all its subsidiaries if the control in the subsidiary is intended to be temporary. That is, if the subsidiary is acquired and held with a view that it will be subsequently disposed in the near future, consolidation of financial statements is not required. It is alleged that holding companies often abuse this relaxation to prevent poor performance
of loss-making subsidiaries causing a dip in their consolidated profits. The proposal for mandatory consolidation may help investors to take an informed decision on the financial status of companies.