[Code of Federal Regulations]
[Title 17, Volume 2]
[Revised as of April 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR210.3A-02]

[Page 248-249]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER II--SECURITIES AND EXCHANGE COMMISSION
 
PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL STATEMENTS,
 
Sec. 210.3A-02  Consolidated financial statements of the registrant and its subsidiaries.

    In deciding upon consolidation policy, the registrant must consider 
what financial presentation is most meaningful in the circumstances and 
should follow in the consolidated financial statements principles of 
inclusion or exclusion which will clearly exhibit the financial position 
and results of operations of the registrant. There is a presumption that 
consolidated statements are more meaningful than separate statements and 
that they are usually necessary for a fair presentation when one entity 
directly or indirectly has a controlling financial interest in another 
entity. Other particular facts and circumstances may require combined 
financial statements, an equity method of accounting, or valuation 
allowances in order to achieve a fair presentation. In any case, the 
disclosures required by Sec. 210.3A-03 should clearly explain the 
accounting policies followed by the registrant in this area, including 
the

[[Page 249]]

circumstances involved in any departure from the normal practice of 
consolidating majority owned subsidiaries and not consolidating entities 
that are less than majority owned. Among the factors that the registrant 
should consider in determining the most meaningful presentation are the 
following:
    (a) Majority ownership: Generally, registrants shall consolidate 
entities that are majority owned and shall not consolidate entities that 
are not majority owned. The determination of majority ownership requires 
a careful analysis of the facts and circumstances of a particular 
relationship among entities. In rare situations, consolidation of a 
majority owned subsidiary may not result in a fair presentation, because 
the registrant, in substance, does not have a controlling financial 
interest (for example, when the subsidiary is in legal reorganization or 
in bankruptcy, or when control is likely to be temporary). In other 
situations, consolidation of an entity, notwithstanding the lack of 
technical majority ownership, is necessary to present fairly the 
financial position and results of operations of the registrant, because 
of the existence of a parent-subsidiary relationship by means other than 
record ownership of voting stock.
    (b) Different fiscal periods: Generally, registrants shall not 
consolidate any entity whose financial statements are as of a date or 
for periods substantially different from those of the registrant. 
Rather, the earnings or losses of such entities should be reflected in 
the registrant's financial statements on the equity method of 
accounting. However:
    (1) A difference in fiscal periods does not of itself justify the 
exclusion of an entity from consolidation. It ordinarily is feasible for 
such entity to prepare, for consolidation purposes, statements for a 
period which corresponds with or closely approaches the fiscal year of 
the registrant. Where the difference is not more than 93 days, it is 
usually acceptable to use, for consolidation purposes, such entity's 
statements for its fiscal period. Such difference, when it exists, 
should be disclosed as follows: the closing date of the entity should be 
expressly indicated, and the necessity for the use of different closing 
dates should be briefly explained. Furthermore, recognition should be 
given by disclosure or otherwise to the effect of intervening events 
which materially affect the financial position or results of operations.
    (2) Notwithstanding the 93-day provision specified in paragraph 
(b)(1) of this section, in connection with the retroactive combination 
of financial statements of entities following a pooling of interests, 
the financial statements of the constituents may be combined even if 
their respective fiscal periods do not end within 93 days, except that 
the financial statements for the latest fiscal year shall be recast to 
dates which do not differ by more than 93 days, if practicable. 
Disclosure shall be made of the periods combined and of the sales or 
revenues, net income before extraordinary items and net income of any 
interim periods excluded from or included more than once in results of 
operations as a result of such recasting.
    (c) Bank Holding Company Act: Registrants shall not consolidate any 
subsidiary or group of subsidiaries of a registrant subject to the Bank 
Holding Company Act of 1956 as amended as to which (1) a decision 
requiring divestiture has been made, or (2) there is substantial 
likelihood that divestiture will be necessary in order to comply with 
provisions of the Bank Holding Company Act.
    (d) Foreign subsidiaries: Due consideration shall be given to the 
propriety of consolidating with domestic corporations foreign 
subsidiaries which are operated under political, economic or currency 
restrictions. If consolidated, disclosure should be made as to the 
effect, insofar as this can reasonably be determined, of foreign 
exchange restrictions upon the consolidated financial position and 
operating results of the registrant and its subsidiaries.

[51 FR 17330, May 12, 1986]