Scope of Consolidated Financial Statements
A parent who presents consolidated statements should:
- Present these statements in addition to its separate financial statements.
- Consolidate all subsidiaries, domestic as well as foreign.
- A subsidiary should be excluded when control is temporary or when it operates under severe long term restriction.
- Disclose the reason for not including the subsidiary.
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Definitions
- A subsidiary is an enterprise that is controlled by another enterprise known as the parent.
- A group is a parent and its subsidiaries.
- Control means the ownership of more than half of the voting power of an enterprise or control of the composition of BOD so as to obtain economic benefits from its activities
- Consolidated Financial Statements are the financial statements of a group presented as those of a single enterprise.
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Consolidated Financial Statements include
- Consolidated Balance Sheet.
- Consolidated P&L Account.
- Notes, statements and other explanatory material.
- Consolidated cash flow statement (only if the parent presents its own Cash Flow Statement)
These are to be presented in the same format as adopted by the parent for its separate financial statements.
Consolidated Procedures
Cost to the parent of its investment in each subsidiary and the parent's portion of equity of each subsidiary to be eliminated, the excess or deficiency to be treated as Goodwill / Capital Reserve
Intra group balances, intra group transactions and resulting unrealized profits and losses to be eliminated in full (unrealized losses should not be eliminated if cost cannot be recovered)
The financial statements should be drawn up to the same reporting date. If not practicable, difference should not be more than six months. If minority's share of loss exceeds the minority interest in the equity of the subsidiary, such excess is to be adjusted against majority interest. Subsequently, in case of profits in future, all such profits are allocated to the majority interest, unless previous losses absorbed by the majority are recovered. Parent's share of profits in subsidiary, should be adjusted for Preference Dividend, whether declared or not on Preference Shares of subsidiary held outside the group.
Other Points
- On disposal of subsidiary, the difference between proceeds from disposal and carrying amount of net assets is treated as profit / loss on disposal in consolidated financial statements.
- Investment to be recorded as per AS-13 in individual financial statement of parent form the date it ceases to be a subsidiary.
Disclosures
- List of all subsidiaries including name, country of incorporation, proportion of ownership interest and voting power held.
- Nature of relationship between the parent and a subsidiary, if the parent does not own more than half of the voting power of the subsidiary.
- Effect of the acquisition or disposal of subsidiaries on the financial position at the reporting date.
- Name of the subsidiaries of which reporting dates are different from that of parent's and the difference in reporting dates.
Accounting policies used should be disclosed:
- If it is not practicable to use uniform accounting policies, the fact together with the proportion of such items in consolidated financial statements to which different accounting policies apply should be disclosed.
- If a member uses different accounting policies, for reasons other than those stated above, appropriate adjustments should be made in consolidated financial statements.
Related existing provisions in the Companies Act, 1956
Balance Sheet of a holding company to include certain particulars of its subsidiaries:
- Attach a copy of audited statement of accounts.
- Attach copies of Reports of Auditors and Directors thereon.
- Attach a statement of the holding company's interest in the subsidiary at the end of the financial year
- Attach details of net aggregate amount deal with as well as not dealt with within the company's account of the subsidiary's profits after adjusting its losses.
- Attach a statement containing information on change in interest of the holding co, change in fixed assets, investments, money borrowed or lent by it, in case the financial years of the two do not coincide.
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