Problem:
Need for Consolidation Process
At a recent staff meeting, the vice president of marketing appeared confused. The controller had assured him that the parent company and each of the subsidiary companies had properly accounted for all transactions during the year. After several other questions, he finally asked, "If it has been done properly, then why must you spend so much time and make so many changes to the amounts reported by the individual companies when you prepare the consolidated financial statements each month? You should be able just to add the reported balances together."
Required: Prepare an appropriate response to help the controller answer the marketing vice president's question.
Please address the GAAP rules and the reasons behind them.