Financial Statements and Disclosures in Consolidation

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| Courtney Price

Transparency is key when it comes to consolidated financial statements, which provide a comprehensive view of a parent company and its subsidiaries. The importance of disclosing these statements cannot be overstated, as they offer critical insights into control information, reporting dates, restrictions on fund transfers, and more.

In Practical Consolidations & Groups – 2023, Lindsay Webber and Elaine Jackson went through some of the key issues encountered in preparing consolidated accounts. One of those issues being disclosures related to consolidation.

Consolidated financial statements are essentially the financial reports of a group of companies presented as though they were one single entity. It's crucial to make it clear that these are consolidated statements, representing the financial health of the parent company and its subsidiaries for a specific period.

One important aspect of these disclosures is control information. For instance, if a company has a golden share, it needs to disclose why it has control. If the power to appoint the board of directors lies with the company, this should also be disclosed.

Another key disclosure relates to reporting dates. If a subsidiary operates on a different fiscal year, this difference must be disclosed. Similarly, any significant restrictions on the ability of subsidiaries to transfer funds should be made clear. This is particularly relevant for multinational corporations where subsidiaries may face regional restrictions on fund transfers.

Exemptions also play a significant role in these disclosures. For example, section 304 exemption allows companies not to disclose their profit and loss statement in the consolidated financial statements. However, the company's profit must still be disclosed, usually in a note at the bottom of the balance sheet page.

Accounting policies across different entities, especially international subsidiaries, can vary. Therefore, it's essential to ensure consistency in accounting policies during consolidation, and any adjustments made for this purpose should be disclosed.

The share capital of the group and the company should be identical in the balance sheet. If there's a discrepancy, it's advisable to revisit the consolidation spreadsheet, as this could indicate an error.

Lastly, if a company chooses not to prepare group financial statements based on the size exemption, this must be disclosed in the single entity statements. This is typically done by including a note on consolidation stating that the company meets the requirements of the relevant section in the Companies Act and has therefore not prepared consolidated financial statements.

The process of consolidation requires careful attention to detail and full transparency. By understanding and adhering to these disclosure requirements, companies can ensure they provide an accurate and comprehensive view of their financial health.

To watch the full session, please click here. The course focuses on:

  • Consolidation basics & the requirement to consolidate
  • Practical implications on consolidation
  • Consolidation case study
  • Common errors on consolidation
  • Review of live consolidated accounts

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.

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About the Author

Courtney Price is a content creator for CPDStore. Courtney joined us during the COVID-19 pandemic and has been involved in the ever-evolving world of accounting ever since. Her passion for reading and writing, coupled with her degree in copywriting from Vega School has allowed her to channel her creativity and expertise into crafting engaging and informative content.


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