What are consolidated financial statements?
A consolidated financial statement is a report of a company’s financial position using the aggregated financials of the parent company and its subsidiaries. Shareholders, creditors, executive management, board members and stakeholders use consolidated financial statements to gauge the health of the overall company. Using consolidated financial statements, stakeholders can look at the whole picture, not just the performance of a single entity within that company. Consolidated financial statements include:
- Consolidated balance sheet
- Consolidated income statement
Why are consolidated financial statements important?
Consolidated financial statements display the results of a group of companies as if it were a single entity.
Consolidated financial statements present the operations and financial position of a parent company and its subsidiaries as if the entire group was a single company.
Consolidated financial statements display the whole picture.
Consolidated financial statements more fairly present child companies when controlling financial interests are at play.
How to prepare consolidated financial statements:
In the simplest terms, consolidated figures are prepared by collecting figures from around a company and its various subsidiaries. Figures collected include: account balances, security holdings, sales, purchases, interest and dividends. They do not include gain or loss on transactions within the group of companies. Instead, intercompany transactions are reconciled and eliminated in order to get a true picture of third party transactions.
Companies create financial statements and reports using figures that are consolidated according to local reporting requirements. For example: US GAAP, multi-GAAP or IFRS. This gets complicated for global companies. Say, for example, a company is headquartered in the US, but has subsidiaries in the EU. The EU subsidiaries submit IFRS statements to the parent. The US parent company then converts those IFRS statements into US GAAP so they can include them in their consolidated financial statement.
The challenge to parent finance teams is that consolidating financial information becomes difficult when data they’re dealing with is subject to complex consolidation structures and prepared using different interest rates, currencies and local reporting standards.
When are consolidated financial statements prepared?
Organizations must prepare consolidated financial statements according to times set by the reigning regulatory authority. Typically, organizations prepare consolidated financial statements four times a year, quarterly and then again in an annual report.
How to improve the preparation of consolidated financial statements?
Organizations can consolidate figure easier by using corporate performance management software (CPM) that makes use of automation, a single data source and financial intelligence. In addition, CPM software uses a workflow that simplifies intercompany elimination and reconciliation. These systems can:
- Upload data more efficiently.
- Capture retail interest and currency rates.
- Store historical and real-time data.
- Perform and process complex calculations on large volumes of data quickly.
- Reduce the time it takes to consolidate the vast amount of financial information collected by global companies.
- Result in figures that are compliant with the reigning accounting standards.
- Automatically connect consolidated figures into reports and financial documents.
