The line of business exception has only recently become the most prominent reason for excluding majority-owned subsidiaries from consolidations. These other restrictive policies have become less widely used while the line of business exception has become more widespread. A major criticism of the line of business exception concerns off- balance sheet financing. When this exception was taken advantage of the liabilities of unconsolidated subsidiaries were excluded from consolidated financial statements. In many cases, these liabilities are significant.
Some parent companies have wholly-owned subsidiaries which finance their operations.
Chrysler Corporation, for example, owns Chrysler Finance Corporation which is excluded from Chrysler's consolidated financial statements on the basis of the line of business exception. This practice allowed Chrysler Corporation to derive benefits from its controlling interest, yet exclude the obligations of these captive finance companies from its consolidated balance sheet. One result is that the balance sheet of Chrysler Corporation and, more generally, any company with similarly excluded subsidiaries, is not comparable to the balance sheet of an enterprise that finances its own operations. The statement also amends ARB 43, Chapter 12, Foreign Operations and Foreign Exchange, to narrow the exception for a majority-owned foreign subsidiary from consolidation of any or all foreign subsidiaries to one that effectively eliminates distinctions between foreign and domestic subsidiaries. They relate to the concept of control and its place in consolidation policy.