Reasons for not consolidating subsidiaries
How Consolidated Financial Reports Are Prepared Financial consolidation software is typically used to prepare consolidated financial reports because it is not as simple as adding up the financial statements from each subsidiary.In the consolidated report, the transactions among subsidiaries or a subsidiary and a parent company are eliminated to avoid double counting.For example, it is common for one company to purchase smaller companies that can complement the primary business and make it even stronger.The smaller companies can help the profitability of the parent company while also continuing to operate as separate entities.
A company may be treated as unconsolidated subsidiary even when a parent company owns 50% or more of its voting common stock.
Benefits of Consolidated Financial Reports Consolidated financial reports are a GAAP requirement for good reason.
Some of the many benefits of consolidated financial reports include: Complete Overview – Consolidated statements allow investors, financial analysts, business owners and other interested parties to get a complete overview of the parent company.
For example, if a parent company purchases goods or services from a subsidiary, the parent company’s purchase and the subsidiary’s sale are both eliminated so this transaction doesn’t distort the final figures.
It can be quite tedious to do this manually but consolidated software simplifies the preparation of the final reports.