Management of Note Disclosures: The Case of Unconsolidated Subsidiaries Prior to Fas No. 94

Posted: 27 Apr 1999

See all articles by Christine I. Wiedman

Christine I. Wiedman

University of Waterloo

Heather A. Wier

University of Alberta - Department of Accounting, Operations & Information Systems

Abstract

Statement of Financial Accounting Standards Number 94 (FAS 94) requires that firms consolidate all majority-owned subsidiaries, including those that were previously exempt from consolidation requirements due to the dissimilarity of parents/subsidiary operations. Prior to FAS 94, firms disclosed summary information on unconsolidated subsidiaries in their notes. This research demonstrates that, although the overall sample is unbiased, pre-FAS 94 note disclosures were insufficient to enable users to obtain an accurate picture of consolidated leverage for a number of firms. The research also illustrates that firms that underreported subsidiary debt had significantly higher consolidated leverage (as measured using pre-FAS 94 note disclosures) than other firms and that the market appeared to have relied on these inaccurate disclosures in assessing firm value.

JEL Classification: M41, M44, M45

Suggested Citation

Wiedman, Christine I. and Wier, Heather A., Management of Note Disclosures: The Case of Unconsolidated Subsidiaries Prior to Fas No. 94. Available at SSRN: https://ssrn.com/abstract=161022

Heather A. Wier (Contact Author)

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-3053 (Phone)
780-420-3325 (Fax)

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