Consolidated Financial Reporting
It is a financial reporting method that is used by companies that have different divisions. The parent company has subsidiary voting stock. The basic goal is to present a comprehensive report of the group’s position and performance.
The parent company combines with subsidiaries for financial statements. In this way, all the stakeholders get an accurate representation of the group’s financial health. Consolidated financial reporting includes cash flow statements, income statements, and balance sheets. It is also important for enabling investors, transparency, creditors, and regulators to assess the overall performance of all the groups.
Importance of Consolidated Financial Reporting for Business Growth
The reasons why consolidated financial reporting is important for business growth are mentioned below
- It provides a comprehensive view of all the groups of companies and allows the stakeholders to access the overall performance of the organization. This is very much necessary for the investors, creditors, and partners to make decisions.
- Consolidated financial reporting helps in identifying the areas that need to be improved. When we consolidate it helps the business in uncovering saving opportunities, allocate resources, and streamline operations. Thus, it enhances overall profitability and efficiency.
- It also facilitates compliance with regulatory requirements. It makes sure that all the financial statements are adhered to the accounting principles which builds trust among the external parties.
- Overall, consolidated financial reporting fosters efficiency, transparency, compliance, and growth of business and makes it a cornerstone of informed decisions.
Process of Consolidated Financial Reporting
1- Identify Entities
The first step is to identify the entities that we include in the consolidation. Entities are the companies in which the parent company has a 50% share.
2- Adjust for Intercompany Transaction
The second step is to avoid double counting by removing the balance and the transactions between the parent company and its entities.
3- Translate Foreign Currency
If the entities have different currencies than the parent currency, they need to translate it into the reporting currency of the parent company. It provides all the financial information in the same currency.
4- Gather Financial Statements
In this step, we combine all the information of the parent company and its entities including balance sheets, income statements, statements of equity, and cash flow statements.
5- Prepare Consolidated Financial Statement
This is the last step in which all the financial statements are prepared including cash flow statement, balance sheet, income statement, and statement of equity. These statements will provide the details of the financial status of all the consolidated groups.
Benefits of Consolidated Financial Reporting for Business Growth
Holistic View
It provides a detailed view of the financial health of the company and its entities and also allows the stakeholders to access their performance.
Compliance
It ensures compliance with the regulatory authorities and accounting standards.
Transparency
Consolidated financial reporting assures transparency by removing the double counting of assets and eliminating intercompany transactions.
Decision Making
It helps in allocating resources more effectively thus increasing the power of decision making. It also provides a vivid picture of the group’s financial situation.
Credibility
It also enhances the credibility of the financial statements of all the groups which is important for attracting investment.
Conclusion
Consolidated financial reporting is no doubt an important accounting process that helps stakeholders get detailed financial information about the companies operating under the parent company. There are several steps included in this reporting process that you can see above. It provides a clear picture of all consolidated groups’ financial status and performance.
