what is the requirement and justification for the use of consolidated financial statements

Full Answer

What factors should be considered when preparing a consolidated financial statement?

of the parent company. While preparing the consolidated statement, it should take into account that the date of reporting the financial statements of the parent company and subsidiary companies is the same.

What are the standards for consolidated subsidiary financial statements?

Depending on the accounting guidelines used, standards may differ for the amount of ownership that is required to include a company in consolidated subsidiary financial statements. Consolidated financial statements report the aggregate reporting results of separate legal entities.

Is it necessary to present consolidated financial statements for public use?

Lastly, if any parent of this parent company presents the consolidated statements according to the mandate of International Financial Reporting Standards (IFRS), then it would not be necessary for this parent to present any consolidated statements for public use.

What is a Consolidated Statement of financial position?

It is created by adding financial statements of the parent and subsidiary companies line by line. The parent company needs to add assets, liabilities, stocks, expenses, and incomes. In the consolidated statement, there are a couple of things that wouldn’t take place.

What is the purpose for consolidated financial statements?

Consolidated financial statements provide a true and fair view of an organisation's financial health across all divisions and subsidiaries. They are required when one company owns more than 50% of the outstanding common voting stock of another company, but there are many rules and regulations to account for.

What are the requirements of preparing consolidated financial statements?

In preparing consolidated financial statements, the financial.statements of the parent and its subsidiaries should be combined on a line.by line basis by adding together like items of assets, liabilities, income.and expenses. ... financial information about the group as that of a single enterprise, the.More items...

What is the best theoretical justification for consolidated financial statements?

Which of the following is the best theoretical justification for consolidated financial statements? In form the companies are separate; in substance they are one entity. In form the companies are separate; in substance they are one entity. more fairly present the activities of the consolidated companies.

When should consolidated financial statements be prepared?

Typically, organizations prepare consolidated financial statements four times a year, quarterly and then again in an annual report.

What are consolidated financial statements and who uses them?

Consolidated financial statements are the financial statements of a group of entities that are presented as being those of a single economic entity. These statements are useful for reviewing the financial position and results of an entire group of commonly-owned businesses.

What are the principles of consolidation?

The following points will highlight the four principles of consolidation.Principle of Consolidation # 1. Elimination of Investment Account:Principle of Consolidation # 2. Goodwill/Cost of Control or Capital Reserve:Principle of Consolidation # 3. Minority Interest:Principle of Consolidation # 4.

What is consolidated balance sheet why and how it is prepared?

A consolidated balance sheet is usually prepared by the business operating as a group of companies that have more than one subsidiary and it portrays the combined details of assets and liabilities. Accounting solutions to help you manage your business just the way you want.

Is consolidation mandatory for associate company?

Every Company having an associate Company is required to consolidate the accounts of such associate companies with its own accounts as per the Companies Act, 2013 and the Indian Accounting Standards provided therein.

Why do companies need to create consolidated financial statements with subsidiaries?

Companies who choose to create consolidated financial statements with subsidiaries require a significant investment in financial accounting infrastructure due to the accounting integrations needed to prepare final consolidated financial reports.

What is a consolidated financial statement?

Consolidated financial statements are financial statements of an entity with multiple divisions or subsidiaries. Companies can often use the word consolidated loosely in financial statement reporting to refer to the aggregated reporting of their entire business collectively. However, the Financial Accounting Standards Board defines consolidated ...

What are the provisional standards for consolidated financial statements?

There are some key provisional standards that companies using consolidated subsidiary financial statements must abide by. The main one mandates that the parent company or any of its subsidiaries cannot transfer cash, revenue, assets, or liabilities among companies to unfairly improve results or decrease taxes owed.

What is GAAP and IFRS?

GAAP and IFRS include provisions that help to create the framework for consolidated subsidiary financial statement reporting. If a company doesn’t choose to use consolidated subsidiary financial statement reporting it may account for its subsidiary ownership using the cost method or the equity method.

What method does a company use to account for subsidiary ownership?

If a company has ownership in subsidiaries but does not choose to include a subsidiary in complex consolidated financial statement reporting then it will usually account for the subsidiary ownership using the cost method or the equity method.

How to report ownership interest?

There are primarily three ways to report ownership interest between companies. The first way is to create consolidated subsidiary financial statements. The cost and equity methods are two additional ways companies may account for ownership interests in their financial reporting. Overall, ownership is usually based on the total amount of equity owned. If a company owns less than 20% of another company's stock, it will usually use the cost method of financial reporting. If a company owns more than 20% but less than 50%, a company will usually use the equity method .

Do private companies have to report financial statements?

As mentioned, private companies have very few requirements for financial statement reporting but public companies must report financials in line with the Financial Accounting Standards Board’s Generally Accepted Accounting Principles (GAAP). If a company reports internationally it must also work within the guidelines laid out by the International Accounting Standards Board’s International Financial Reporting Standards (IFRS). Both GAAP and IFRS have some specific guidelines for entities who choose to report consolidated financial statements with subsidiaries.

What is consolidated financial statement?

What is the Consolidated Financial Statement? Consolidated Financial Statements is the financial statements of the overall group which represents the sum total of its parents and all of its subsidiaries and includes all three key financial statements – income statement, cash flow statement and balance sheet.

Why is it important to have stand alone financial statements?

For investors, these statements are crucial for making a concrete decision. Stand-alone financial statements are different than consolidated financial statements. So if a company is not showing its financial statements in a consolidated manner, it would be difficult for an investor to make the right decision.

What is a reporting period?

Reporting Period A reporting period is a month, quarter, or year during which an organization's financial statements are prepared for external use uniformly across a period of time in order for the general public and users to interpret and evaluate the financial statements. read more.

What is uniform accounting policy?

Accounting Policy Accounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements.

Is parent company's equity included in consolidated financial statement?

First, the parent company’s investment in the subsidiaries would not be included in the consolidated financial statement. Second, whatever portion of equity the parent company has in the subsidiary companies would not get included in the consolidated balance sheet.

Do parent companies have to have a consolidated balance sheet?

If the parent company is on the brink of filing its financial statements with a security commission for issuing any type of instruments in the public market, then it would not be required for the parent company to present a consolidated balance sheet.

Should the balance sheets of subsidiary companies be adjusted to the current fair market value of the assets?

While producing the consolidated statements, the balance sheets of subsidiary companies should be adjusted to the current fair market value of the assets. While preparing the consolidated income statement, if the revenue of the parent company is the expense of the subsidiary, it should be removed entirely.

What is financial statement?

The financial state­ments of a group in which the assets, li­a­bil­i­ties, equity, income, expenses and cash flows of the parent and its sub­sidiaries are presented as those of a single economic entity

What is the objective of IFRS 10?

The objective of IFRS 10 is to establish prin­ci­ples for the pre­sen­ta­tion and prepa­ra­tion of con­sol­i­dated financial state­ments when an entity controls one or more other entities. [IFRS 10:1]

What is IFRS 10?

IFRS 10 Con­sol­i­dated Financial State­ments outlines the re­quire­ments for the prepa­ra­tion and pre­sen­ta­ tion of con­sol­i­dated financial state­ments , requiring entities to con­sol­i­date entities it controls. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee.

When was IFRS 10 issued?

Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee. IFRS 10 was issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.

When was the investment entity exemption issued?

[Note: The in­vest­ment entity con­sol­i­da­tion exemption was in­tro­duced by In­vest­ment Entities, issued on 31 October 2012 and effective for annual periods beginning on or after 1 January 2014.]

Is a wholly owned subsidiary a subsidiary of another entity?

it is a wholly-owned sub­sidiary or is a par­tially-owned sub­sidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not pre­sent­ing con­sol­i­dated financial state­ments.

Can an entity apply IFRS 10 to an earlier accounting period?

An entity may apply IFRS 10 to an earlier accounting period, but if doing so it must disclose the fact that is has early adopted the standard and also apply: IFRS 11 Joint Arrange­ments. IFRS 12 Dis­clo­sure of Interests in Other Entities.