The Accounting Act regulates consolidated financial statements as an integral whole adjusted and compiled in accordance with consolidation methods.
The goal of consolidated financial statements is to provide shareholders and other persons with information about the economic indicators of the entire group which is interconnected. Consolidated financial statements provide the given information as if it were a single accounting unit.
We wrote about who is subject to consolidation as such in the previous article. Now we would take a general look at the obligations of individual persons.
The consolidation process begins with the consolidating accounting entity. It must first of all define the consolidation unit, i.e. determine which accounting entities will be subject to consolidation. This information must be communicated to the consolidated entities in sufficient time. Next, it must determine the rules applicable in the entire group of accounting entities. In particular, it includes:
a) determination of methods of valuation of assets and liabilities,
b) determination of the scope of required data needed for consolidation from individual entities,
c) determination of the method of carrying out consolidation and, where appropriate, determination of lower consolidation units in the event of consolidation by individual levels,
d) determination of deadlines for submission of data and for completion of consolidations.
In practice, the appropriate form is to adopt an internal regulation that contains all these rules.
Consolidated accounting units are obliged to undergo consolidation and provide the necessary cooperation.
The consolidated financial statements contain a balance sheet, a profit and loss statement, an appendix, an overview of cash flows and an overview of changes in equity and are compiled as of the balance sheet date of the consolidating entity. For the compilation of these statements, established consolidation methods must be used. The source of the data is the adjusted statements of the consolidated units compiled, except for minor deviations, also as of the same day. (The length of the accounting period must be the same for all consolidated units.)
The final step of the consolidation process is the preparation of the consolidated annual report and its verification by the auditor. This contains information about the consolidation unit, accounting units under common influence and associated accounting units. Both the annual report and the consolidated financial statements must be published within 30 days of their verification by the auditor and approval by the relevant body of the company, no later than 12 months after the balance sheet date.
Carrying out all the activities related to consolidation may not be entirely straightforward, even for groups of companies that are not very large. Especially, if the process is taking place within the group for the first time, we recommend using support or advice from experts.
