In financial accounting, consolidated financial statements provide a comprehensive view of the financial position of both the parent company and its subsidiaries, rather than one company’s stand-alone position. To consolidate is to combine assets, liabilities, and other financial items of two or more entities into one. In the context of financial accounting, the term consolidate often refers to the consolidation of financial statements wherein all subsidiaries report under the umbrella of a parent company. https://online-accounting.net/ Consolidation also refers to the union of smaller companies into larger companies through mergers and acquisitions (M&A). Consolidated accounting brings together financial aspects like revenue, expenses, cash flows, liabilities, profits, and losses of a branch to that of its mother branch. Under the consolidation method, the accounting statement merges together financial entries of the parent company and its subsidiaries with the necessary elimination of entries so as to avoid overlapping of data.

The consolidation process in accounting brings together financial aspects of subsidiary branches with their mother branch. In a large enterprise, the financial consolidation process is typically handled by the Accounting department, which is under the supervision of the Controller or VP of Accounting/Reporting, and ultimately overseen by the Chief Financial Officer . But in the accounting world, “financial consolidation” is a well-defined process that includes several complexities and accounting principles. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee („DTTL“), its network of member firms, and their related entities.

Consolidation Method

In the specific case of securitizations, this liability is recognized under the heading “Financial liabilities at amortized cost – Debt certificates” in the consolidated balance sheets . In securitizations where the risks and benefits of the transferred assets are substantially retained by the BBVA Group, the part acquired by another company in the consolidated Group is deducted from the recognized financial liabilities , as established by paragraph 42 of IAS 39.

Changes in the value of non-monetary items by changes in foreign exchange rates are recognized temporarily under the heading “Valuation adjustments – Exchange differences” in the accompanying consolidated balance sheets. Changes in foreign exchange rates resulting from monetary items are recognized under the heading “Exchange differences “ in the accompanying consolidated income statements. In the hedges of net investments in foreign operations, the differences produced in the effective portions of hedging items are recognized temporarily under the heading „Valuation adjustments – Hedging of net investments in foreign transactions“ in the consolidated balance sheets. These differences in valuation are recognized under the heading “Exchange differences “ in the consolidated income statement when the investment in a foreign operation is disposed of or derecognized. If a reporting entity determines it does not meet the criteria to consolidate a legal entity, it should next determine if the equity method of accounting is appropriate.

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Since the same principles are applied to a consolidated VIE, a parent should show a negative noncontrolling interest position related to a consolidated VIE if the subsidiary generates losses that would cause the noncontrolling interest balance to decrease below zero. That is, losses should continue to be attributed to the noncontrolling interest even if that attribution results in a deficit noncontrolling interest balance. The accounting for changes in interest will depend on the determination of control before and after the transaction. When a reporting entity gains control or loses control , the change is reflected prospectively from the date at which control transfers and a gain or loss is typically recorded. In accounting, control is required for one entity to consolidate another.

It also requires the investor to recognize, in net income, its share of the investee’s earnings for each reporting period. The equity method of accounting is required when an investor or a company is able to exercise significant influence over the operating or financial decisions of an investee. There are some key provisional standards that companies using consolidated subsidiary financial statements must abide by. The main one mandates that the parent company or any of its subsidiaries cannot transfer cash, revenue, assets, or liabilities among companies to unfairly improve results or decrease taxes owed. Depending on the accounting guidelines used, standards may differ for the amount of ownership that is required to include a company in consolidated subsidiary financial statements. Under the equity method of consolidation in the financial consolidation process, the parent company reports the investment in the subsidiary on the balance sheet as an asset that is equal to the purchase price. Then when the subsidiary company reports its net income, the parent company reports revenue equal to its share of the subsidiary’s profits.

IFRS Sustainability Disclosure Standards (in progress)

Non-current assets held for sale are generally measured at fair value less sale costs, or their carrying amount, calculated on the date of their classification within this category, whichever is the lower. Non-current Consolidation accounting assets held for sale are not depreciated while included under this heading. The financial statements of the subsidiaries are consolidated with those of the Bank using the global integration method.

The Group’s policy will be to transfer the amounts recognized under the heading “Valuation adjustments“ to the heading “Reserves” in the consolidated balance sheet. This addresses the accounting procedure, from the point of view of the debtor, used when a financial liability is totally or partially extinguished through the issue of equity instruments to the creditor. The interpretation is not applicable to this type of transaction when the counterparties are shareholders or related parties and act as such, nor when the exchange for equity instruments is in accordance with the original terms of the financial liability. In this case, the issue of equity instruments shall be measured at fair value on the date the liability is extinguished and any difference between this value and the carrying amount of the liability shall be recognized on the income statement for the period. The consolidated statements of recognized income and expenses reflect the income and expenses generated each year. They distinguish between income and expenses recognized as results in the consolidated income statements and “Other recognized income ” recognized directly in consolidated equity. “Other recognized income ” include the changes that have taken place in the year in the “Valuation adjustments” broken down by item.

The receiving entity should record the assets based on the parent’s basis and not that of the contributing entity. See BCG 7.1.3 for further discussion on the accounting by the receiving entity and BCG 7.1.4 for further discussion on the accounting by the contributing entity.