Benefits consolidating subsidiaries
Each subsidiary must prepare its own financial statements including balance sheet, income statement, statement of cash flows and statement of retained earnings.This information for each subsidiary is then combined using consolidation software to create consolidated financial reports that represent the financial position of the parent company.Since each subsidiary also prepares its own standalone financial report, consolidated financial statements may seem to some to be an unnecessary extra step. An analysis of the importance of consolidated financial statements reveals these statements offer several benefits to investors, financial analysts and others who may be evaluating the health of the parent company.In this article, we will review consolidated financial reports in more detail including the unique benefits they offer. Consolidated financial reports are prepared by any parent company that owns one or more subsidiaries.Benefits of Consolidated Financial Reports Consolidated financial reports are a GAAP requirement for good reason.Some of the many benefits of consolidated financial reports include: Complete Overview – Consolidated statements allow investors, financial analysts, business owners and other interested parties to get a complete overview of the parent company.SUMMARY: Consolidated financial statements can be complex to prepare, especially for parent companies that include many subsidiaries.
But times have changed, and the tools and processes for vendor consolidation exist.One of the reasons for this is that in the past some companies have used consolidated reports to hide losses and liabilities in special subsidiaries that were created specifically for hiding these financial problems.The Financial Accounting Standards Board and the International Accounting Standards Board regularly revisit the definitions and requirements for consolidated statements in order to make them more reliable and easier to use.This generally means that the head entity of the group is responsible for all or most of the group's tax obligations (such as paying tax and lodging tax returns).
Consolidation is usually an all-or-nothing event: once the decision to consolidate has been made, companies are irrevocably bound.For example, if a parent company purchases goods or services from a subsidiary, the parent company’s purchase and the subsidiary’s sale are both eliminated so this transaction doesn’t distort the final figures.