Consolidated financial statements

In a group consisting of a parent company, subsidiaries and sub-subsidiaries, a complex structure of internal relationships and transactions is created. This complexity requires a special form of accounting: the consolidated financial statements. The consolidated financial statements are a summary of all the individual financial statements of the group companies, which neutralises internal effects and provides a clear, comprehensive picture of the financial position of the entire group.

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The necessity of consolidated financial statements

Imagine a group in which the individual companies do business with each other. These internal transactions can lead to distorted profit and loss presentations. For example, one company could sell goods to another group company at a higher price, resulting in an artificial profit. The consolidated financial statements aim to eliminate such distortions in order to present a realistic picture of the Group's financial situation.

Fundamentals and challenges of group accounting

The preparation of consolidated financial statements is a challenging task. The first step is to check whether there is an obligation to prepare consolidated financial statements. This is based on the control of one company by another, which is usually given by a majority shareholding in the voting rights. Once the obligation to prepare consolidated financial statements has been established, the scope of consolidation is determined, i.e. which companies are included in the consolidated financial statements.

Standardisation of financial statements

A key aspect is the standardisation of financial statements. This means that all financial statements in the Group must be prepared in accordance with standardised accounting and valuation principles. Differences in currencies and balance sheet dates must be harmonised in order to ensure consistent presentation.

Consolidation steps

After preparing the aggregated balance sheet, in which all the financial statements are added together, the actual consolidation. Intragroup items are eliminated in the process. These include debt consolidation, expense and income consolidation, elimination of intercompany profits and losses and capital consolidation.

Debt consolidationIntragroup loans and other loans liabilities are offset against each other, as they do not exist from a Group perspective.
Consolidation of expenses and incomeInternal interest income and expenses are neutralised.
Elimination of interim resultsGains from internal transactions, such as the sale of goods within the Group, are eliminated.
Capital consolidationThis adjusts for double counting in equity resulting from investments within the Group.

Significance for practice

In practice, the consolidated financial statements are relevant for various target groups. For investors and banks, they provide a transparent basis for assessing the economic performance of the Group.