What Are Consolidated Reports?
Consolidated reports are financial statements that present the financial position and performance of a parent company and its subsidiaries as a single economic entity. They combine key information such as assets, liabilities, equity, income, expenses and cash flows into one set of accounts. While each subsidiary maintains its own accounting records and prepares its own financial statements, these figures are brought together and adjusted during consolidation to show the overall financial position of the group.
What is the objective of consolidated reporting?
The purpose of consolidated reporting is to provide a clear, true and fair view of a group’s overall financial performance and position. By presenting the group as one entity, consolidated accounts make it easier for management, shareholders and other stakeholders to assess how the organisation is performing as a whole, rather than reviewing multiple standalone sets of accounts.
What is the difference between combined reporting and consolidated reporting?
Combined reporting presents the financial results of a group of related entities within a single report, while keeping each entity’s figures separate. This allows readers to assess the performance and financial position of each individual company within the group.
Consolidated reporting, by contrast, merges all relevant entities into one set of figures. Intercompany balances and transactions are eliminated, and the group is presented as a single entity. This provides a high-level view of overall group performance, rather than focusing on individual subsidiaries.
What are the requirements for consolidated reporting?
In the UK, consolidation is generally required by law and accounting standards, rather than being an annual decision.
Under UK accounting standards (UK GAAP or IFRS), a parent company must prepare consolidated financial statements if it controls one or more subsidiaries. Control is typically established where the parent owns more than 50% of voting rights, or otherwise has the power to direct the subsidiary’s financial and operating policies.
Where a parent does not have control but does have significant influence, the investment is usually accounted for using the equity method rather than full consolidation.
Does every business need to prepare consolidated reports?
Most groups are required to prepare consolidated financial statements. However, small groups may be exempt under the UK Companies Act.
A group may qualify as small if it meets at least two of the following criteria for two consecutive financial years:
- Turnover of £10.2 million or less
- Total assets of £5.1 million or less
- 50 employees or fewer
Groups that qualify for this exemption may choose not to prepare consolidated accounts, although individual company accounts are still required.
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