Business, Legal & Accounting Glossary
Consolidated financial statements are financial statements that factors the holding company’s subsidiaries into its aggregated accounting figure. It is a representation of how the holding company is doing, as a group. The consolidated accounts should provide a true and fair view of the financial and operating conditions of the group. To do so typically requires a complex set of eliminating and consolidating entries to work back from individual financial statements to a group financial statement that is an accurate representation of operations.
A consolidated financial statement presents the financial position or results of a parent company and its subsidiaries as if it were a single enterprise. Under Generally Accepted Accounting Principles (GAAP), all majority-owned subsidiaries must be consolidated in a consolidated financial statement of the parent company. Preparing a consolidated financial statement for a firm with a complex capital structure and numerous subsidiaries is an enormously difficult task, and the presentation of a consolidated financial statement raises many accounting issues. The preparation of a consolidated financial statement is often complicated by transactions between parent and subsidiary. Other issues in creating a consolidated financial statement include dealing with minority ownership interests and different fiscal year-ends among the corporate entities. A major controversy in the preparation of a consolidated financial statement is whether a business combination should be accounted for by the purchase method or the pooling method. Nevertheless, only a consolidated financial statement can portray fairly the financial position of the parent company.
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This glossary post was last updated: 18th April, 2020 | 2 Views.