Consolidated Or Unconsolidated Financial Statements – FAQ | IFRS

Consolidated or unconsolidated financial statements

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Consolidated or unconsolidated financial statements – Consolidated financial statements provide information about the assets, liabilities, equity, income and expenses of both the parent and its subsidiaries as a single reporting entity.

That information is useful for existing and potential investors, lenders and other creditors of the parent in their assessment of the prospects for future net cash inflows to the parent. This is because net cash inflows to the parent include distributions to the parent from its subsidiaries, and those distributions depend on net cash inflows to the subsidiaries.

Consolidated financial statements are not designed to provide separate information about the assets, liabilities, equity, income and expenses of any particular subsidiary. A subsidiary’s own financial statements are designed to provide that information.

Obviously this does not mean that IFRS standards on for example Operating Segments (IFRS 8) should not be used. It implies that segmented financial information has to be reconciled to financial reporting lines already provided in the consolidated financial statements.

Only companies that are controlled by a parent are included in the consolidated financial statements (owning 51% of another company’s stock or by other means/contractual regulations). Ownership is for a large part based upon the total amount of stock owned. Consolidated or unconsolidated financial statements

Consolidated or unconsolidated financial statementsIf a company owns less than 20% of another company’s stock, it may use the cost method of financial reporting. If a company owns more than 20% but less than 50%, the company uses the equity method. Under both methods, consolidated financial statements are not permitted.

Unconsolidated financial statements are designed to provide information about the parent’s assets, liabilities, equity, income and expenses, and not about those of its subsidiaries. That information can be useful to existing and potential investors, lenders and other creditors of the parent because:

  • a claim against the parent typically does not give the holder of that claim a claim against subsidiaries; and
  • in some jurisdictions, the amounts that can be legally distributed to holders of equity claims against the parent depend on the distributable reserves of the parent.

Another way to provide information about some or all assets, liabilities, equity, income and expenses of the parent alone is in consolidated financial statements, in the notes as company accounts or unconsolidated financial statements. Such unconsolidated financial statements can also be a separate component of the consolidated financial statements. Consolidated or unconsolidated financial statements

Information provided in unconsolidated financial statements is typically not sufficient to meet the information needs of existing and potential investors, lenders and other creditors of the parent. Accordingly, when consolidated financial statements are required, unconsolidated financial statements cannot serve as a substitute for consolidated financial statements.

Nevertheless, a parent may be required, or choose, to prepare unconsolidated financial statements in addition to consolidated financial statements. Consolidated or unconsolidated financial statements

What Are Consolidated Financial Statements?

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 financial statement reporting as reporting of an entity structured with a parent company and subsidiaries. Consolidated or unconsolidated financial statements

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 companies who choose to report consolidated financial statements with subsidiaries.

See also: The IFRS Foundation

Consolidated or unconsolidated financial statements

Consolidated or unconsolidated financial statements

Consolidated or unconsolidated financial statements

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