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10 HASKINS & SELLS February IN a country where industrial expansion has occurred in unparalleled fashion, especially in corporate form, and in a generation which has seen the development of the automobile, aeroplane, radio, etc., until new inventions merely form a part of the day's news, it is no small wonder that the rapid growth of the holding company should be accepted as naturally as the growth of a single child in a large family. The many advantages attending the use of the holding company device, principally in the functions of management and finance, have given this form of organization a secure place in the industrial world. The chances are it will be displaced only by a more advantageous type of business organization; not by legal restraint. In the public utility field alone approximately seventy per cent of the billions of dollars invested in electric, gas, street and interurban railway companies is controlled by holding companies and their subsidiaries. In contrast to the rather well established procedure in most phases of corporate accounting, there is as yet no standard form of accounting for holding companies. Operating companies in the public utility field ordinarily follow lines prescribed by regulatory bodies; however, pure holding companies in the utility field may employ different methods of accounting in preparing their annual reports. A holding company is a legal entity in that, in the absence of fraud, a right of action against a subsidiary company cannot be enforced against the parent company, and vice versa. From the legal point of view, therefore, the balance sheet of the holding company by itself would suffice. However, looking beyond the legal fiction of the separate corporate entities and viewing the related companies as a single organization, it becomes desirable from a business point of view to have information in addition to that contained in the balance sheet of the holding company. There are three principal methods which are used to present such information concerning the subsidiaries: (1) to submit statements of each subsidiary individually; (2) to submit combined statements of the holding company and all subsidiaries; (3) to submit consolidated statements of the holding company and all subsidiaries. The first method is feasible only where the number of subsidiaries is very small. Advantage lies in the fact that individual analysis permits of discerning the weak members of the group. Where there are many related companies, however, it would be difficult to visualize the situation as a whole by viewing a large number of individual financial statements. Combined statements of the holding company and all subsidiaries sometimes are prepared to show total investments, but such statements are inclined to be misleading. A combined statement merely shows the aggregate, without elimination, of the intercompany balances according to the individual statements of the related companies. A consolidated statement includes the total of the holding company figures and all subsidiaries with proper elimination of intercompany items. It is doubtful as to what proportion of prospective investors are aware of this distinction between a combined and a consolidated statement. In one instance the combined net income, as exhibited in the Holding Company Accounting
Object Description
Title |
Holding company accounting |
Author |
Anonymous |
Subject |
Holding companies -- Accounting |
Citation |
Haskins & Sells Bulletin, Vol. 10, no. 02 (1927 February), p. 10-12 |
Date-Issued | 1927 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | HS Bulletin 10-p10 |