A consolidated financial statement (CFS) is the "financial statement of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent company and its subsidiaries are presented as those of a single economic entity" (IFRS 10 Appendix A), according to the definitions stated in International Accounting Standard 27, "Consolidated and separate financial statements" (IAS 27.4), and International Financial Reporting Standard 10, "Consolidated financial statements" (IFRS 10.2).
According to IAS 1.10, a complete set of consolidated financial statements comprisesÃÂ ÃÂ
Consolidated accounts are prepared after the accounts for the constituent companies have been prepared. While preparing a consolidated financial statement, there are two basic procedures that need to be followed: first, cancelling out all the items that are accounted as an asset in one company and a liability in another, and then adding together all uncancelled items (IFRS 10.B86).
There are two main type of items that cancel each other out from the consolidated statement of financial position.
In the United Kingdom, section 399 of the Companies Act 2006 requires parent company directors to prepare group accounts unless an exemption applies (UK Companies Act 2006 s.399). Small groups are exempt, where total net assets are below ã5.1m, annual turnover is less than ã10.2m, or the average number of employees is below 50 (UK Companies Act 2006 s.398). Two of these three conditions must be met. For entities not following IFRS, these requirements are further detailed in the Financial Reporting Standard applicable in the UK and Republic of Ireland (UK GAAP FRS 102 Section 9).
For listed companies, section 403 of the Companies Act 2006 mandates the preparation of group accounts in accordance with UK-adopted international accounting standards (UK Companies Act 2006 s.403). Following the UK's exit from the European Union, these accounts must comply with standards endorsed by the UK Endorsement Board (UKEB) for financial years beginning on or after 1 January 2021 (SI 2019/685). The primary legislative driver for consolidation under this framework is IFRS 10, which replaces ownership-based definitions with a single "control" model (IFRS 10 Appendix A). Control is established when a parent possesses power over an investee, exposure to variable returns, and the ability to influence those returns through its power (IFRS 10.7). Once a company elects to prepare IFRS group accounts, section 403(4) requires continued use of this framework unless a relevant change in circumstances occurs (UK Companies Act 2006 s.403(4)).
Goodwill is treated as an intangible asset (IAS 38.8) in the consolidated statement of financial position. It arises in cases where the cost of purchase of shares is not equal to their par value (IFRS 3.32). For example, if a company buys shares of another company worth $40,000 for $60,000, there is a goodwill worth $20,000.
According to IFRS 3.32, goodwill is determined by measuring the difference between the aggregate of the consideration transferred and the net of the acquisition-date amounts of the identifiable assets acquired.
If the parent company does not own 100% of the shares of a subsidiary, a proportion of the net assets is attributable to external shareholders. This is defined by IFRS 10 Appendix A as equity in a subsidiary not attributable, directly or indirectly, to a parent.
The measurement of NCI at the date of acquisition is governed by IFRS 3.19, allowing either fair value (Full Goodwill) or a proportionate share of the acquiree's identifiable net assets. Post-acquisition, the value of the non-controlling interest must be updated to reflect its share of the subsidiary's comprehensive income, as required by IFRS 10.B94.
The carrying amount of NCI at the reporting date is determined as (IFRS 10.B94):
Where:
Note on Loss Allocation: According to IFRS 10.B94, the is applied to profits and losses even if this results in the non-controlling interest having a deficit balance.
A group may engage in internal trade relations. However, IFRS 10.B86(c) requires the full elimination of intragroup assets, liabilities, equity, income, expenses, and cash flows relating to transactions between entities of the group.
Where goods remain in the inventory of the buying company at the reporting date, the group must eliminate unrealised profit (PURP) (IFRS 10.B86(c)). This ensures the inventory is stated at the original cost to the group as per IAS 2 (IAS 2.9).
The Provision for Unrealised Profit (PURP) is calculated as:
Key Compliance Note: According to KPMG's Insights into IFRS, the elimination of these profits is necessary even if the transaction was conducted at arm's length, because the group cannot "earn" profit by trading with itself (IFRS 10.B86).
The fundamental difference lies in the perspective: the separate financial statement (Einzelabschluss) follows the principle of legal separation (IAS 27.6), while the consolidated financial statement (Konzernabschluss) follows the principle of the economic entity (IFRS 10.B86).
While the separate financial statement is primarily used for taxation and determining dividend distributions, the consolidated financial statement serves as a superior information tool because it:
This synthetic example, based on the IFRS Accounting Taxonomy 2024, demonstrates the presentation of consolidated and separate numbers in a single statement using detailed XBRL tagging.
(illustrating the presentation of consolidated profit or loss and other comprehensive income in one statement and the classification of expenses within profit or loss by function) (in thousands of currency units)
Disclosure of tax effects relating to each component of OCI
(in thousands of currency units)
XYZ Group â Year ended 31 December 20X2 (in thousands of currency units)
Diversified Company â Year ended 31 December 20X7 (in thousands of currency units - CU)
Diversified Company has five reportable segments: car parts, motor vessels, software, electronics and finance.
Segments are strategic business units offering different products and services. They are managed separately because each business requires different technology and marketing strategies.
(a) Revenues from "All other" are attributable to four small segments including property business and consulting. (b) Management relies on net interest revenue for the Finance segment; only net is disclosed.
5. Information about major customers
Revenues from one customer of Diversified CompanyâÂÂs software and electronics segments represent approximately CU 5,000 of the CompanyâÂÂs total revenues.