Tax Article - Many Companies Should Expect Changes on December 31, 2005 Financial Statements

Under FASB Interpretation 46(R) also known as FIN46, many companies effective for years ending after 12/15/2005 are going to be required to consolidate a number of entities that have not been consolidated in the past. This will include outside real estate, equipment leasing, management companies, and other entities that owners of companies are used to seeing as separate entities. The statements that you will be getting from CPA firms on 12/31/2005 will show consolidated financial information that includes these entities for the first time.

These new consolidated financial statements will look significantly different than the financial statements you received last year. The consolidated financial statements will include the assets and liabilities of these formerly separate entities. However, the equity of these former separate entities will be shown as minority interest and not be included in the equity on the financial statements. The income of the former separate entity will not be included in the consolidated net income. Clients, bankers, vendors, bonding companies, as well as other users of the financial statements will need to completely reevaluate loan covenant ratios and amounts. Drafting pro forma 12/31/05 consolidated financial statements now is a good way to get a preview of what your new statements will look like.

Please contact Feeley & Driscoll's Boston Accounting Firm by Email or call us at 1 (888) 875-9770.

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