Consolidation of Group Companies

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Consolidation of group companies is a process that involves combining the financial statements of two or more related companies into a single set of statements. In Ireland, the consolidation of group companies is governed by the Companies Act 2014 and the International Financial Reporting Standards (IFRS). In this blog post, we will discuss the requirements and procedures for consolidation of group companies in Ireland.

Requirements for Consolidation of Group Companies in Ireland

Under the Companies Act 2014, a company is considered to be a subsidiary of another company if the parent company controls the subsidiary. The most common indication of controls is where a parent company holds more than 50% of the voting rights in the subsidiary. In order to consolidate the financial statements of a group of companies, the parent company and its subsidiaries must first prepare its own individual financial statements in accordance with the applicable accounting standards, such as FRS 102.

The parent company must then prepare consolidated financial statements that include the financial information of all the subsidiaries within the group. The consolidated financial statements must provide a true and fair view of the financial position and performance of the group as a whole.

Procedures for Consolidation of Group Companies

The procedures for consolidating group companies in Ireland are as follows:

Step 1: Identify the Subsidiaries

The first step in the consolidation process is to identify all the subsidiaries that are required to be included in the consolidated financial statements. A subsidiary is a company that is controlled by another company, known as the parent company.

Step 2: Eliminate Intercompany Transactions and Balances

Once the subsidiaries have been identified, the next step is to eliminate all the intercompany transactions and balances. Intercompany transactions and balances are transactions and balances between the parent company and its subsidiaries.

For example, if the parent company sells goods to a subsidiary, this transaction would be eliminated from the consolidated financial statements. Similarly, if the parent company owes money to a subsidiary, this balance would also be eliminated from the consolidated financial statements.

Step 3: Adjust for Non-controlling Interests

Non-controlling interests refer to the portion of a subsidiary's equity that is not owned by the parent company. The parent company must adjust the consolidated financial statements to reflect the portion of the subsidiary's equity that is not owned by the parent company.

For example, if the parent company owns 80% of a subsidiary's equity, the consolidated financial statements must reflect the remaining 20% of the subsidiary's equity that is owned by non-controlling interests.

Step 4: Adjust for Non-Uniform Accounting Policies or Year Ends

Adjust for any differing accounting policies of differing year ends. If a subsidiaries year end is within three months before the parent company year end the financial statements of the subsidiary can be used and adapted for material transactions in the intervening period. If the subsidiary’s year-end falls outside that window the subsidiary needs to produce a trial balance for the same period as the parent. Where subsidiary’s have different accounting policies adjustments need to be made to bring the figures in line with the parent accounting policies for the consolidation.

Step 5: Prepare Consolidated Financial Statements

Once all the necessary adjustments have been made, the parent company can prepare the consolidated financial statements. The consolidated financial statements must include a consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity, and consolidated cash flow statement and notes to the financial statements.

The consolidated financial statements must provide a true and fair view of the financial position and performance of the group as a whole. The financial statements must also comply with the applicable accounting standards, such as FRS 102.

Step 6: Audit the Consolidated Financial Statements

The consolidated financial statements must be audited by an independent auditor. The auditor's report must provide an opinion on whether the consolidated financial statements provide a true and fair view of the financial position and performance of the group as a whole.

Conclusion

Consolidation of group companies is an important process that enables the financial position and performance of a group of companies to be presented in a single set of financial statements. In Ireland, the consolidation of group companies is governed by the Companies Act 2014 and FRS 102.

The procedures for consolidating group companies in Ireland involve identifying the subsidiaries, eliminating intercompany transactions and balances, adjusting for non-controlling interests, preparing consolidated financial statements, and auditing the consolidated financial statements. By following these procedures, the parent company can provide a true and fair view of the financial position and performance of the group.

How can we help? If you need help preparing consolidated financial statements or reviewing consolidation working and financial statements contact [email protected].

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About the Author

As a member of our Practice Support team, Lindsay’s focus is on helping practices achieve on-going best practice compliance, providing in-house training, technical assistance, and file reviews. Lindsay is a member of the South African Institute of Chartered Accountants and Chartered Accountants Ireland. She trained with KPMG in Johannesburg and specialised in external audit of financial services companies. She then spent six years lecturing audit and financial reporting to under-grad and post-grad students at Rhodes University in South Africa before moving to Ireland and returning to practice in a small, and then a medium sized firm where she was an audit manager. Altogether, she has over six years external audit experience along with over six years academic experience specialising in Audit and Financial Accounting. She is passionate about combining her academic and practice backgrounds to provide technical information in a useful and practical way. Outside of her accounting qualifications Lindsay holds a PGDiploma in Higher Education from Rhodes University and graduated with distinction from the MBA course at Trinity College Dublin. She is currently working towards a Diploma in Forensic Accounting through Chartered Accountants Ireland.

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