Consolidated Financial Statements

  • How it Works

  • Why It Matters

  • When It's Required

Consolidated Financial Statements

Consolidated financial statements present the financial position and results of a group of companies as if they were a single entity. When a parent company owns one or more subsidiaries, instead of preparing separate reports for each company, a consolidated statement combines them all into one clear, unified financial report.

“One group. One report. One complete picture.”

1. How It Works

If Company A owns 100% of Company B, their assets, liabilities, income, and expenses are merged into a single set of financial statements. This gives investors and regulators a true view of the parent company's overall financial health, without having to piece together multiple reports.

For example, if the parent earned $1M and the subsidiary earned $500K, the consolidated income statement would show a total of $1.5M in revenue.

2. Why It Matters

Consolidation removes internal transactions between companies in the group—like intercompany sales or loans—to avoid double-counting. It provides transparency and helps users understand the real economic performance of the entire group, rather than each business individually.

3. When It's Required

Most accounting standards, including IFRS and GAAP, require consolidation when a parent company has control, usually through owning more than 50% of another entity. Even if ownership is less than 100%, consolidation is still necessary unless the company doesn’t exercise control.

Key Takeaways

✅ Consolidated financial statements combine multiple entities into one report
✅ They reflect the financial results of a parent and its subsidiaries
✅ Internal transactions are eliminated to avoid duplication
✅ Required under major standards like IFRS and GAAP when control exists
✅ Useful for showing the financial health of the entire group
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