This study investigates the reactions of firms with material associates to the consolidation standard, AASB 1024. The consolidation standard became operative in December 1991, while the first reporting period for the affected firms' was in 1992. The most notable change in the standard was the definition of 'control' and it was expected that a majority of firms with material associates would be affected by this new definition and be required to consolidate. Alternatively, firms would restructure new contracts or renegotiate existing contracts in an attempt to avoid consolidation and this alternative would be costly to the firms. Therefore, the objective of this study is to examine firms that disclose material associates prior to AASB 1024 and investigate the structural changes made to mitigate the affects of the standard.
This study investigates the number of, and level of ownership interest in, associates, and the leverage and interest coverage ratios to examine the reactions of firms to AASB 1024. The fundamental finding of this study was, that the consolidation standard had a major impact of both groups in the sample, as both the affected group and the avoiders of consolidation made structural changes to their firms ' to mitigate the effects of the consolidation standard, AASB 1024. While firms ' avoiding the consolidation standard made structural changes to their firms ' in 1991, the affected group made the majority of the structural changes in 1992. The structural changes made were to reduce the number of associates held by the parent company and to reduce the level of ownership interest in associates. These changes lowered the reported leverage ratio in the financial statements along with a higher repoI1ed interest coverage ratio.