Consolidated financial statements: how a parent reports
When a company controls others, IFRS 10 has the parent report the group as one economic entity. A plain explanation with the source, no advice.
In this post
When one company controls others, its financial statements can cover the whole group rather than the parent alone. The international standard IFRS 10 sets out that approach. It has the parent present its own and its subsidiaries' figures as those of a single economic entity. This page explains the terms in plain words, using the IFRS Foundation's summary of the standard. It is general information, not accounting advice.
The short answer
"Consolidated" means one set of financial statements for a group. IFRS 10 treats control as the basis for putting a parent and the companies it controls into that one set. The standard's own summary says it "defines the principle of control, and establishes control as the basis for consolidation."
What "consolidated" means
A holding company with subsidiaries has, in legal terms, several companies. Each has its own accounts. A consolidated set of statements combines the parent and its subsidiaries into one presentation.
According to the IFRS Foundation's summary, IFRS 10 "establishes principles for presenting and preparing consolidated financial statements when an entity controls one or more other entities." The summary describes the result as financial statements that "present the assets, liabilities, equity, income, expenses and cash flows of a parent and its subsidiaries" as those of "a single economic entity."
The point of the single presentation is that readers see the group's position as one picture, not as a set of separate company accounts.
Control as the basis
The question for consolidation is not whether one company owns shares in another. It is whether the parent controls the other entity. IFRS 10 defines the principle of control and establishes control as the basis for consolidation.
For how control is measured in different countries, including the thresholds used for company law and tax, see how much ownership counts as control. The two questions are related but not the same: a rule for company law and an accounting test for consolidation can each give a different answer.
What a consolidated statement shows
The summary lists the items a parent presents for the group:
- assets
- liabilities
- equity
- income
- expenses
- cash flows
For a holding company, these items are the combined figures of the parent and the companies it controls. The statements show the group as one economic entity, even though each subsidiary remains a separate legal company.
Where this page stops
This summary covers the IFRS 10 principle of control and the single-entity presentation. It does not set out the rules for every reporting situation, and it does not say which entities must apply IFRS or how national rules differ. Those questions depend on the country and on the entity, and they need the full standard and a qualified accountant.
Where to read the standard
- The IFRS Foundation's summary of IFRS 10 is the source for the statements on this page.
- The summary does not replace the full standard. For any specific question, read the full text of IFRS 10 and ask a qualified accountant.
- For the difference between a holding company and the companies it owns, see holding company, parent company and subsidiary and what a holding company is.
Sources
- IFRS Foundation, "IFRS 10 Consolidated Financial Statements" (summary of the standard): https://www.ifrs.org/issued-standards/list-of-standards/ifrs-10-consolidated-financial-statements/