How do public companies account for the financial performance of JVs and investments, for reporting purposes?
- 1 decade agoFavorite Answer
Before the ENRON fiasco, JVs and other similar investments were only reported as footnotes in Financial and Company Annual Reports. This loophole, together with other non-disclosures and creative accounting, enabled ENRON to hide losses and liabilities and inflate their earnings.
With the Sarbanes and Oxley Act enacted and the implementation of new and specific SEC regulations regarding disclosure of all pertinent risks and information regarding public companies, the Financial Statements and the Statement of balances (similar to a Statement of Retained Earnings) of JVs and investments entered into by public companies should be shown as supporting notes to account balances shown in the mother company's financial statements. All risks and forward looking major transactions not reflected in the Financial Statements should also be disclosed as as part of the Financial Statement Notes.