Consolidated Financial Statements Definition (investopedia.

com)

What Are Consolidated Financial Statements?

Consolidated financial statements are financial statements of an entity with multiple divisions or
subsidiaries. Companies can often use the word consolidated loosely in financial statement reporting to
refer to the aggregated reporting of their entire business collectively. However, the Financial Accounting
Standards Board defines consolidated financial statement reporting as reporting of an entity structured
with a parent company and subsidiaries.

Private companies have very few requirements for financial statement reporting but public companies
must report financials in line with the Financial Accounting Standards Board’s Generally Accepted
Accounting Principles (GAAP). If a company reports internationally it must also work within the
guidelines laid out by the International Accounting Standards Board’s International Financial Reporting
Standards (IFRS). Both GAAP and IFRS have some specific guidelines for companies who choose to report
consolidated financial statements with subsidiaries.

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Consolidated Financial Statements

Understanding Consolidated Financial Statements

In general, the consolidation of financial statements requires a company to integrate and combine all of
its financial accounting functions together in order to create consolidated financial statements that
shows results in standard balance sheet, income statement, and cash flow statement reporting. The
decision to file consolidated financial statements with subsidiaries is usually made on a year to year
basis and often chosen because of tax or other advantages that arise. The criteria for filing a
consolidated financial statement with subsidiaries is primarily based on the amount of ownership the
parent company has in the subsidiary. Generally, 50% or more ownership in another company usually
defines it as a subsidiary and gives the parent company the opportunity to include the subsidiary in a
consolidated financial statement. In some cases less than 50% ownership may be allowed if the parent
company shows that the subsidiary’s management is heavily aligned with the decision making processes
of the parent company.