Fortunately, there are now types of software that help consolidate transactions that are valuable in their ability to automate and speed up these processes. Consolidation software then transforms these multiple data sets into actionable insights with a single click. ACME has revenues of $1,000,000 and 500,000 in assets that it includes in its financial statements. That being said, ACME also oversees 2 subsidiaries, each producing $3,000,000 in revenue and $1,000,000 in assets. It would be inaccurate to simply report the parent company`s $1,000,000 in income, as the company also oversees the subsidiaries. This is where the consolidated financial statements come into play, which combine the figures of the parent company with the figures of the subsidiaries in order to give an accurate and complete picture of the finances. Private companies have very few financial reporting requirements, but publicly traded companies are required to report financial data in accordance with the Financial Accounting Standards Board`s generally accepted accounting principles (GAAP). When a company reports internationally, it must also comply with the International Accounting Standards Board`s International Financial Reporting Standards (IFRS) guidelines. GAAP and IFRS have specific guidelines for companies that choose to publish consolidated financial statements with subsidiaries. Consolidated financial statements are a report on a company`s net assets, financial position and results of operations using aggregate financial data of the parent company and its subsidiaries.
Shareholders, creditors, senior management, boards of directors and stakeholders use the consolidated financial statements to assess the health of the company as a whole. Consolidated financial statements allow users to see the big picture, not just the performance of a single company within that company. Consolidated financial statements include: There are mainly three ways to report holdings between companies. The first option is to prepare consolidated financial statements of subsidiaries. Cost and equity methods are two other ways for companies to include ownership shares in their financial reports. Overall, ownership is usually based on the total amount of equity held. If a company owns less than 20% of the shares of another company, it will generally use the cost of financial reporting method. If an entity owns more than 20% but less than 50%, it generally applies the equity method. Organisations must prepare consolidated financial statements in accordance with the deadlines set by the competent supervisory authority. Typically, companies prepare consolidated financial statements four times a year, quarterly, and then again in an annual report.
In itself, the term “consolidation” simply means putting things together. But in the world of accounting, “financial consolidation” is a clearly defined process that encompasses multiple complexities and accounting principles. There are also different consolidation accounting methods, which may vary depending on a parent company`s majority stake in a subsidiary. For example, if the parent company holds a majority stake in the subsidiary (more than 50%), consolidation accounting is used. In this case, all assets, liabilities, income and expenses of the subsidiary are summarized in the annual financial statements of the parent company. To learn more about financial consolidation and the benefits of cloud-based financial consolidation software, download our free white paper. Goodwill is treated as an intangible asset in the consolidated balance sheet. It occurs in cases where the purchase cost of the shares does not correspond to their nominal value. For example, if a company buys $40,000 worth of shares of another company for $60,000, we conclude that there is goodwill of $20,000. Consolidated financial statements are the “financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent company and its subsidiaries are presented as those of a single economic entity”, as defined in International Accounting Standard 27 “Consolidated and individual financial statements” and International Financial Reporting Standard 10 “Consolidated financial statements”.
  In October 2012, IFRS 10 was amended by investment companies (amendments to IFRS 10, IFRS 12 and IAS 27), which defined an investment company and introduced an exemption from the consolidation of certain subsidiaries for investment companies. It also introduced the requirement for an investment company to measure these subsidiaries at fair value through the income statement in accordance with IFRS 9 Financial Instruments in its consolidated and separate financial statements. In addition, the amendments introduced new disclosure requirements for investment companies in IFRS 12 and IAS 27. A recent white paper written by BPM Partners highlights the value of financial consolidation functionality in the budgeting and planning process.