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McGraw-Hill/Irwin
The Reporting Entity and Consolidated Financial Statements
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Consolidated Financial Statements
Consolidated financial statements present the financial position and results of operations for a parent (controlling entity) and one or more subsidiaries (controlled entities) as if the individual entities actually were a pany or entity.
Consolidated Financial Statements
Consolidation is required when a corporation owns a majority of another corporation’s mon stock and occasionally under other circumstances.
panies are considered to be related when one controls the other or both are under mon control of another entity.
The same accounting principles should be applied in preparing consolidated financial statements as in preparing pany financial statements.
More useful than the separate financial statements of the panies when panies are related.
Benefits of Consolidated Financial Statements
Presented primarily for those parties having a long-run interest in the pany, including its management, shareholders, long-term creditors or other resource providers.
Often provide the only means of obtaining a clear picture of the total resources of bined entity that are under the parent's control.
Limitations of Consolidated Financial Statements
Results of panies included in the consolidation are not disclosed, thereby hiding poor performance.
Not all the consolidated retained earnings balance is necessarily available for dividends of the parent.
Financial ratios are not necessarily representative of any pany in the consolidation.
Limitations of Consolidated Financial Statements
Similar accounts of panies that bined in the consolidation may not be parable.
Additional information panies may be needed for a fair presentation, thus requiring voluminous footnotes.
Information is lost any time data sets are aggregated.
Subsidiary Financial Statements
Creditors, preferred stockholders, and mon stockholders