Final answer:
Yes, the FASB made the correct decision in requiring consolidated financial statements to recognize all subsidiary’s assets and liabilities at fair value regardless of the percentage ownership acquired by the parent.
This decision enhances transparency, providing stakeholders with a more accurate representation of the consolidated entity's financial position and performance.
Step-by-step explanation:
Consolidated financial statements aim to present a holistic view of a group of companies as a single economic entity. Recognizing all subsidiary assets and liabilities at fair value, irrespective of ownership percentage, ensures a more accurate reflection of the group's financial health. For instance, consider a parent company, P, owning 60% of Subsidiary S, with S having a property worth $1,000,000. Traditionally, only P's 60% ($600,000) was recognized. However, under the new FASB mandate, the entire $1,000,000 property value is reported on the consolidated statement, revealing the entity's total exposure.
This decision aligns with the principle of relevance in accounting, providing users with comprehensive, unbiased information for decision-making. While it may lead to fluctuations in reported values due to changes in fair market values, it provides a clearer picture of the group's financial health, fostering transparency and aiding investors' understanding of risks and opportunities.
Additionally, fair value recognition offers comparability across entities, improving the consistency of financial reporting. However, challenges might arise in determining fair values, leading to increased complexity and potential estimation errors.