Informed decision-making is a necessity in corporate finance, which is why consolidated financial statements are so important for all stakeholders of an organisation. These statements provide a thorough understanding of a company's financial position, including their assets, expenses, and profits. In this we article we look at some of the commonly asked questions regarding consolidated financial statements, while also covering how finance teams can optimise their financial consolidation.
According to the Australian Accounting Standards Board in AASB 10 ‘consolidated financial statements’ are 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.
In more general terms, consolidated financial statements are the net result of the combination of the financial results or statements of the holding company commonly referred to as the parent company and all the subsidiaries or child companies.
The consolidated financial statement consists of three financial statements:
The accounting team of ultimate parent company prepares consolidated financial statements based on the country of registration and account standards at the required reporting intervals and at financial year end.
Other companies may also choose to prepare consolidated financials if their owners desire these reports to assess their performance.
Private or unlisted companies may elect not to compile consolidation financial statements and report their financial performance.
Consolidated Financial Statements provide a concise view of the financial activities and the financial position of the group, rather than the individual companies that make up the group. The consolidated financial statements enable stakeholders to have an accurate understanding of the group and more informed decisions.
Additional benefits of consolidated financial statements include:
The financial results from the subsidiaries are collected and mapped into the consolidation chart of accounts and consolidated, translated and intercompany transactions and balances eliminated.
A popular solution is to use spreadsheets to collect the results and compile the consolidated financial statements. This method contains a number of risks including calculation errors, data insecurity, version control, maintainability and lack of transparency.
Companies that want to reduce these risks and automate the calculations, translation, and eliminations opt for purpose-built consolidation software like Fluence Technologies cloud consolidation solution.
Fluence is out-of-the-box financial consolidation software that is quick to roll out and easy for your finance team to own. Fluence’s cloud software assists in producing consolidated financial statements by accounting for subsidiaries within a group, including acquisitions, business units, investments, and other legal entities.
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