With standard forms of financial statements faced by experts of all organizations. They contain information about operations, financial position of the enterprise. If two or more organizations are in legal and financial relationships, then consolidated financial statements are prepared.
A bit of history
The first consolidated reporting was published in the USA in 1902. It was a report of six companies as a single entity. In European countries and Japan, holdings began to develop in the second half of the last century, the practice of consolidated reporting appeared in the 1980s. In Russia, the need for consolidated reporting fell during the period of holding holdings, economic restructuring and privatization of enterprises. Only in 1996, the Ministry of Finance approved the "Methodological recommendations for the preparation of consolidated reporting."
The development of consolidated financial statements was influenced by the emergence of large corporations, the availability of the financial market, and the requirements of investors for joint reporting. Otherwise, it is impossible to determine the direction of further capital investment and analyze the risks. Automation of processes for compiling balances with the help of special software allows you to increase efficiency.
What is she like?
Consolidation is determined by economic feasibility. Often, entrepreneurs instead of one corporation create several small economically interconnected organizations. This form of business allows you to save on tax payments, reduce the risk of operations and ensure stability in the supply of materials.
The idea of ​​consolidation is simple. In the group of legally interconnected companies, one plays a dominant role (the parent), while the others are subordinate organizations. Consolidated financial statements give an idea of ​​the condition of the group as a whole. At the same time, each enterprise is obliged to conduct a business unit of its operations and form financial statements on them. Consolidation is not just the summation of identical reporting items. Transactions between corporate members are not shown in the statements.
For whom?
It is believed that the main data users are investors who have the skills to use information. In fact, the reports contain information for all groups of interested users: from lenders to owners. In particular, shareholders can use information for short- and long-term group-wide planning.
Today, the preparation of consolidated financial statements (IFRS) is mandatory for all enterprises with subsidiaries.
Legislative regulation
In the Russian Federation, the requirements for documents are spelled out in the "Regulation on maintaining accounting in the Russian Federation." This regulatory document says that if an organization has dependent units located on the territory of the Russian Federation and abroad, it is obliged, in addition to individual reporting, to also provide consolidated.
Banks in the Russian Federation have been compiling IFRS since 2004. Publicly listed companies must form consolidated balances from 2012. According to the results of the report “Conception of development of a BU in the Russian Federation for the medium term”, it was revealed that the largest companies use IFRS and other international forms, but they still make serious mistakes when compiling a report.
An important step in the development of this direction was the adoption of the Federal Law “On Consolidated Reporting”. The law spells out the categories of organizations that are required to draw up IFRS: credit organizations, insurance companies, non-state PFs, organizations in the form of public corporations, and audit companies (since 2017). The law does not apply to state and municipal institutions. All these participants are required to prepare summary reports from 2012 or from the date of formation. If they had previously drawn up consolidated balances according to the standards of other countries, then in addition you need to provide a report for the transition period. The structure and their regulations are prescribed in the “IFRS Explanations for Application in the Russian Federation”
Key Terms
Intra-group transactions are transactions between the parent and subsidiary or between subsidiaries of a group.
Intra-group balance - the balance of “receivables” and “payables” for internal operations.
Unrealized gains / losses are the financial result from internal operations, which is included in the carrying amount of assets.
Consolidated Reporting
Reporting is submitted by the main company. In this case, the balances of all organizations should be drawn up on one date using a single accounting policy. The document is formed by adding up the same indicators of all companies. The following articles shall be excluded for which the group has no evidence for the current and previous period, as well as:
- the cost of the parent company’s investment in each enterprise;
- the amount of intragroup operations;
- the amount of unrealized gains and losses.
If one of the organizations issued preferred shares, which are owned outside the group, the profit / loss is adjusted for the amount of dividends.
Key feature
Consolidated financial statements necessarily include such an indicator as the minority interest in the equity of subsidiaries. How to calculate it? First, the amount of equity and net profit of subsidiaries is determined, reduced by the amount of unrealized profit from intragroup transactions. Then, the specific gravity of each organization is calculated for this indicator. If the result is negative, then it is displayed in brackets.
The difference between the carrying amount and the real value of goodwill is recognized as an expense (income) over its estimated useful life.
The notes provide such information:
- The list of enterprises with an indication of the share in the capital.
- The reasons why the company's indicators are not included in the general report.
- The nature of relations between enterprises in which the main company does not own more than 50% of the assets.
- Reporting items to which different accounting policies have been applied.
The nuances of filling
Organizations that have switched to consolidated financial statements since 2016, provided that their activities are regulated by tariffs, are required to apply IFRS 14.
It is forbidden to provide non-essential information in reporting. For example, accounting for financial instruments involves the disclosure of a large array of data. But if the organization does not use this type of asset, then to bring this article to the balance sheet does not make sense. Another thing is if the volume of foreign exchange earnings has changed dramatically. Then in the supplements should indicate the reasons for what happened.
If the contract for the provision of services is a continuation of participation in a financial asset, information on it is submitted in accordance with IFRS 7. Continuing participation is a situation when an organization sells the services of a transferred asset and intends to make profit from it in the long term. We are only talking about situations where cash rewards are floating.
It is recommended to pay salaries to employees who have completed their labor activity at the discount rate of government bonds (IAS 19).
The cost of fruit crops is estimated at the actual cost of their acquisition (IAS 41), but they are accounted for in accordance with IAS 16. Previously, a fair value measurement in some organizations led to large financial expenses, and in others to difficulties in finding alternatives in the market.
When an audit of consolidated financial statements is carried out, the first step is to check the parental participation of the parent company in the share of each of the group's enterprises. If the subsidiary is not an investment organization, but provides the main services, then it should be consolidated. If the company is an investment company, its share is recognized in the balance sheet at fair value. The algorithm for such accounting is prescribed in IAS 28.
If additional information is disclosed in internal documentation, for example, an employee’s statement, it should be attached to the balance sheet (IAS 34).
All these nuances should be considered when forming the consolidated reporting.
Data analysis
Consolidated reporting allows you to use group income as a basis for calculating dividends, taxation in countries where this is permitted by law. Therefore, the analysis of consolidated statements is aimed at studying the state of the group itself and of individual enterprises. Based on these data, it is possible to determine how the financial condition of each company will change as a result of changes in the financial position of the group.
Balance
Since the group may include organizations with different industry sectors, the coefficients that are significant for each company should be selected. Let's consider them in more detail:
- The share of OA in the property = OA / Currency balance.
- The share of cash (DS) in OA = (DS + Short-term financial investments) / OA.
- Indicator of financial independence = Equity (UK) / Currency balance.
- Borrowed capital structure = Long-term liabilities / Borrowed capital.
- Coef. investment = SC / non-current assets.
- Current liquidity = OA / Short-term liabilities.
- Quick liquidity = ( + Short-term financial investments + Short-term DZ) / Short-term liabilities.
- Absolute liquidity = (DS) / Short-term liabilities.
- OA turnover = Revenue / Avg. the amount of OA.
- Asset turnover = Revenue / Avg. balance currency.
- Profit rate = Net profit (PE) / Revenue.
- Return on Sales = Profit from Sales / Revenue.
- Return on assets = PE / Cf. balance currency.
- Profitability SK = state of emergency / Avg. amount SK.
Standard values ​​for each coefficient are determined on the basis of industry average. If the group includes enterprises of various fields of activity, then several regulatory bases are compiled. To determine the planned values ​​for each coefficient of the group as a whole, the contribution of each of the industry components is estimated. Based on the collected data, a sustainability rating is formed: excellent, good, satisfactory and unsatisfactory.
Profit and loss
In the process of analyzing the consolidated financial statements of the organization, it is necessary to determine the share of subsidiaries by the minority share in profits, since the financial results of the group depend on the way companies are combined. In the event of a merger, the value of the group exceeds the value of the two companies. There is a saving caused by an increase in the scale of production. IFRS 1 describes disclosure requirements. The parent company is obliged to present in the financial statements of subsidiaries and separately its values. It should also justify the factors and causes of their occurrence. Since the merger of organizations leads to an increase in their value, the report provides information on the amount of dividends to be distributed and per share.
This is important to consider.
The summary balance sheet contains additional information about the state of the parent company. Therefore, it does not include intra-group operations. The following balance items are subject to detailed decoding:
- the amount of equity and long-term investments;
- current settlements: advances, receivables and payables, deferred financial results;
- company loans;
- other non-traditional operations.
The explanatory note should:
- indicate the type of consolidation used;
- list the grounds for combining enterprises in a group;
- show the relationship.
If the consolidated balance sheet for the group is drawn up for the first time, then special attention should be paid to the analysis of differences in accounting policies, namely in the accepted methods of valuing assets, the share of investment of the parent company. It is very important to use a single accounting policy in all companies of the group. Then it will be easier to analyze reporting.
Conclusion
Consolidated statements are a consolidated balance sheet for a group of enterprises that are legally and / or economically interconnected. The process of its formation is carried out by summing up the same indicators of reports, calculating the minority share of net profit. Peculiarities of compilation are spelled out in the same Federal Law. The reporting does not reflect transactions between group members. Consolidation is intended to show the financial condition of the group as a whole.