Paraphrase the attached document below.

 

Unit 4 Individual Project

                Principles that govern the consolidation of financial statements include the financial accounting standards board (FASB) topic 810 and statement 141 among others. GAAP (Generally Accepted Accounting Principles) currently requires an entity to consolidate its financial reporting with that of any company that it has a controlling financial interest over. There are two models to determine the controlling financial interest, which is the voting interest model and the variable interest entity (VIE) model. When a company has the ability to control the economic performance of significant impact and an obligation to absorb losses or receive benefits of significance it is considered a variable interest entity (VIE). If it is determined that a company is not a variable interest entity (VIE) it is considered a voting interest entity. The company with the controlling interest holds 50% or more of the voting stock. The guideline does have its limitations. By disclosing certain information, a controlling company may circumvent the variable interest entity (VIE) guideline allowing it to engage in seemingly unethical practices ("Fasb issues update," 2014).

 

Consolidated financial statements

                The difference between consolidated and equity methods of accounting is that with the consolidated method subsidiaries essentially do not exist for financial reporting purposes. Financial statements from the parent company and its subsidiaries are combined into one set of financial statements for reporting purposes. Consolidated financial statements are beneficial when an investor has a controlling interest in the investee with ownership of greater than 50% of voting stock (Hoyle, Schaefer & Doupnik, 2013).

 

AT&T, Inc.

                AT&T, Inc. recently made headlines with its acquisition of DIRECTV, which AT&T had a stake in before the merger. AT&T’s investments include 38% interest in Otter Media Holdings, 47% interest in YP Holdings and 40% interest in Root Sports Southwest. Investments and acquisitions in other companies include Leap, Atlantic Tele-Network, Nextwave, GSF Telecom, and NII Holding Inc. many of its other subsidiaries and affiliates names were omitted from the annual report. AT&T uses the equity method of accounting for its investments with less than 50% interest of voting stock ("AT&T INC 2014," 2015). The equity method is used when the investor has significant influence over the investee but not control with 20 – 50% ownership of voting stock (Stice & Stice, 2012). The equity method of accounting shows investments on the investor’s financial statements but not on the investee’s financial statements.

 

Goodwill – AT&T

                Goodwill is an intangible asset, its value is subjective, and it is the difference between the acquired assets and liabilities ("Goodwill," 2015). AT&T had goodwill in the amount of $69,692 million in 2014 and $69,273 million in 2013 as shown on their 2014 consolidated balance sheet. The goodwill reported is related to the acquisition of Leap and the sale of Connecticut operation in 2014 other goodwill was attributed to acquisitions and sales in 2013. AT&T uses a discounted cash flow and a market multiple approach to test goodwill ("AT&T INC 2014," 2015).

 

Goodwill – FASB

                FASB (financial accounting standards board) Topic 350 and statement no. 142 cover intangible assets and goodwill. Financial accounting standards board (FASB) statement no 142 accounting for goodwill is reported as units. Goodwill with an indefinite useful life will not be amortized and those assets with finite lives will be amortized over their useful live without constraint. Goodwill being tested for impairment will use a two-step process. Step one is screening for impairment and step two measures impairment. Impairment testing is done annually however; if certain criteria are met, testing will not be necessary. Any changes in goodwill are required to be disclosed from period to period ("Summary of statement," 2001).

                Financial accounting standards board (FASB) Topic 350 includes the following provisions goodwill that is amortized should be done over 10 years or less using the straight-line method unless a more appropriate useful life is demonstrated. Testing for goodwill should be done at either the entity level or the reporting unit level. Triggering events require goodwill to be tested for impairment. A qualitative assessment can determine if goodwill is impaired or not and whether further testing is required or not ("Intangibles—goodwill and other," 2014).

                  Before the update of the new provisions included in the financial accounting standards board (FASB) statement no 142, some of the old goodwill reporting included the following: depending on circumstances, goodwill was tested for impairment as frequently as necessary or annually. Entities could either perform a qualitative test or start the impairment test. Calculating for impairment was based on a hypothetical analysis using an implied fair value to determine an implied fair value. New goodwill reporting has eliminated step two in the impairment test, which as the hypothetical analysis of goodwill. Before starting the impairment test for goodwill a qualitative assessment is done to determine the need to complete the impairment test.

 

               

 

References

AT&T INC 2014 annual report. (2015, February 10). Retrieved from                 http://www.att.com/Investor/ATT_Annual/2014/downloads/att_ar2014_annualreport.pdf

FASB issues update for private companies on consolidation of variable interest entities. (2014,           March 20). Retrieved from                 http://www.fasb.org/cs/ContentServer?pagename=FASB/FASBContent_C/NewsPage&ci  d=1176163912100

Goodwill. (2015). Retrieved from http://www.accountingtools.com/dictionary-goodwill

Hoyle, J. B., Schaefer, T. F., & Doupnik, T. S. (2013). Fundamentals of advanced accounting.          (5 ed.). New York, NY: McGraw-Hill/Irwin. Retrieved from

                http://online.vitalsource.com/

Intangibles—goodwill and other (topic 350). (2014, January). Retrieved from      http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176163744355&acce     ptedDisclaimer=true

Stice, E. K., & Stice, J. D. (2012). Intermediate accounting, 18e. Mason, OH: South-Western             Cengage Learning. Retrieved from http://online.vitalsource.com/

Summary of statement no. 142. (2001, June). Retrieved from                http://www.fasb.org/summary/stsum142.shtml