Group consolidation is a necessary step in the preparation of legally compliant and meaningful consolidated financial statements. As part of Group consolidation, affiliated subsidiaries are fully consolidated. This means that the balances of your balance sheet, profit, and loss items are included in full in the consolidated balance sheet. For this purpose, the individual financial statements of the companies affiliated with the Group must be standardized in the first step and aggregated into a total financial statement. Subsequently, this summation must be adjusted by consolidation measures for the interdependencies and in-house performance relationships between the Group companies. The decisive consolidation measures are subdivided into expense and income consolidation, elimination of intercompany profits.

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Consolidation Obligations arising from supplier relationships between Group companies must be removed from the consolidated financial statements when preparing consolidated financial statements. Receivables and liabilities arising from the supply relationships are in conflict with the respective group companies. The group should be represented as a company and in a company, the receivables and liabilities, which parts of a company have against each other, are not accounted for and must be offset against each other. Part of the debt consolidation can also include other assets, prepaid expenses, provisions, contingent liabilities, contingent liabilities or other financial obligations- Continued.

Legal basis 

A parent company that directly or indirectly controls at least one subsidiary is generally required by the consolidated financial statements. In accordance with most accounting standards, for example, US-GAAP and IFRS, the parent-subsidiary ratio in Germany is acc. Section 290, para. 2 HGB.

The required consolidation measures are regulated in German accounting law in § 300 to § 307 and in IFRS mainly in IFRS 10 and IFRS 3.

Consolidation of income and expenses 

Consolidation of income and expenses

The income statement and/or the statement of comprehensive income of a group must be presented as if the Group were a single entity. The necessary eliminations and reclassifications mainly relate to service and supply relationships between Group companies, the so-called intercompany relations. These must be eliminated so that the resulting revenues and expenses from the perspective of the Group are recognized as being in line with performance and not overstated if necessary.

Interim 

Interim

earnings elimination Intercompany profit elimination eliminates gains and losses from intragroup transactions that have changed the performance of a group company. This is the case, for example, if goods delivered have led to profits or losses for other Group companies and these are capitalized as part of the acquisition or production costs of the Group companies that receive them as current assets. Intercompany profits eliminate both interim profits and interim losses.

Capital Consolidation

Subsidiaries are reported in the individual financial statements of a group under investments in fixed assets. Subsidiaries, on the other hand, report equity in their separate financial statements, which is allocated pro rata to the Group company in the consolidated financial statements. In order for the Group to be presented as a company, the equity items of the subsidiaries included in the consolidated financial statements must be offset in the capital consolidation. The portion of the equity capital of the subsidiaries, which may not affect the Group but other shareholders, must be reported in the consolidated financial statements as a minority interest.

According to German accounting law, IFRS and US-GAAP, the first-time consolidation of a subsidiary are to be carried out at the time this subsidiary has become. This effective date of the initial consolidation determines the time at which the values ​​are to be determined on the first-time consolidation.

Consolidation Software Support 

for Consolidation Software Professional accounting programs, support the consolidation measures required to prepare consolidated financial statements in a variety of ways. It is important that recurring bookings and eliminations, such as the elimination of intercompany relationships, can be largely automated. This can be controlled by group identifiers, which are stored in personal accounts and with which corresponding postings can be marked as group postings.

When supporting the consolidation of the group by accounting software, the following functions are important:

  • Establishment of unions
  • Sales tax advance for unions
  • Any summary of clients
  • Access protection per client
  • Complete documentation of corresponding group bookings
  • Group identifier per employee account
  • Automatic marking of bookings as group bookings for affected personal accounts
  • Largely automated filtration of intercompany sales
  • Reconciliation of Group sales via voucher numbers
  • Consolidation of clients booked in foreign currency
  • Check duplicate documents for selected client groups
  • Impairment of individual divisions