Table of Contents
Unit 4 Individual project
Consolidated Financial Statements
AT&T, Inc
Goodwill at AT&T
The Financial Accounting Standards Board (FASB) guideline for Goodwill.
Unit 4 Individual project
Consolidation is governed by a number of fundamental principles. FASB is one such factor. GAAP or Generally Accepted Accounting Principles require that financial statements be consolidated together with those of companies in which they have a controlling financial stake. You can test for the controlling financial interests using two different models. These models are the Variable Interests Entity and the Voting Interest models. A Variable Entity (VIE), on the other hand, is a business that has the ability to structure and control its economic performance. It is also required to absorb losses or accept benefits. When a company’s status is determined by this model to be a voting interest entity, the company is no longer a variable interest entity. Controlling interest means that a company holds 50% or greater of a voting stock. This guideline is not without limitations. The VIE guidelines may be ignored by a controlling company, allowing them to engage in unethical business practices. The only way to do so is by revealing specific information (Fasb’s update, 2014).
Consolidated financial statementsConsolidated and equity methods of accounting are quite different. In consolidated accounting the subsidiaries don’t really exist for reporting purposes. Financial statements of both the parent and subsidiary companies are combined and used for reporting. The new, consolidated financial statement is beneficial to investors with a controlling investment in a firm that holds at least 50 percent of the total voting stock.
AT&T, Inc. AT&T, Inc. was recently the subject of much discussion due to its acquisition by DIRECTV. AT&T was already a major shareholder in DIRECTV Company, even before the merger. AT&T’s investments are diverse. This includes 38% of Otter Media Holdings, 47% of YP Holdings, and a 40 percent interest in Roots Sports Southwest. They also have investments in Leap Holdings Inc. GSF Telecom and Atlantic Tele-Network. In the annual report, many of these other acquisitions are not included. AT&T uses the equity method for all investments where they have less than 50% voting stock interest (“AT&T INC 2014.,” 2015″). This equity method can only be used by investors who have a great deal of influence on the company they invest in but do not control them through 20-50% ownership. (Stice & Stice 2012). This method of accountancy displays a firm’s investment on its financial statement, but does not display the same information for the company that made it.
Goodwill (AT&T)Goodwill is an asset with a subjective and intangible value. It shows the difference in assets acquired and liabilities (Goodwill,” 2015). AT&T’s 2014 consolidated financial statement shows that they had $695692 in goodwill for 2014 and $69273 for 2013. Both the sale and acquisition of Connecticut as well the acquisition Leap is said to be related to goodwill. AT&T tests their goodwill using both a discount cash flow and a multiple market approach (“AT&T IN 2014,” 2015).
Topic 350 of the Financial Accounting Standards Board (FASBFASB) and Statement No. Statement no. 142 covers both intangible and goodwill. FASB Statement No. According to FASB statement no. As goodwill has a life indefinite, it will not be depreciated. Assets that have a finite lifespan are amortized during their entire useful life. A two-step test is used to determine whether goodwill has been impaired. The first test screens for impairment. And the second tests it. The annual testing process must be completed, but certain assets do not require testing if they meet certain parameters. It is mandatory to disclose any change in goodwill over a period of time (“Summary,” 2001).
Financial Accounting Standards Board Topic 350 requires that goodwill be amortized in a straight line over 10 years, or less, except if a longer and more useful lifetime can be shown. Next, the provision says that the testing of goodwill must be done either at the entity or reporting level. An assessment of quality can assess whether or not goodwill is impaired and if additional testing will be required (“Intangibles–goodwill and other,” 2014).
FASB statement No. 142 was issued before the updated versions. The following were part of the process for reporting goodwill prior to the updates included in FASB statement no. According to the circumstances, testing of goodwill was done on a need-to basis and as often as necessary. Entities can either perform qualitative or impairment tests. A fair value implied by the analysis was used to calculate impairment. Modern reporting of goodwill has eliminated the testing in two steps by removing step 2, the hypothetical analysis. Prior to the impairment assessment to be conducted on goodwill, the qualitative assessment will determine whether the impairment analysis is necessary.
