Consolidated financial statements give you one clear view of how the entire company is performing. If you manage multiple entities, they’re not just for audits. You need them to make decisions, plan cash flow, and report to investors.
Read: What Great Financial Reporting and Analytics Actually Look Like
Most articles explain what consolidated reports are. This one shows you how to prepare them, step by step. You’ll learn how to align charts of accounts, clean up intercompany transactions, and avoid last-minute errors.
We’ll also look at how modern finance teams speed up the process and connect it to planning, forecasting, and reporting.
What Are Consolidated Financial Statements?
Consolidated financial statements combine the financial results of a parent company and all its subsidiaries into a single, group-level report. This includes the income statement, balance sheet, cash flow statement, and the statement of changes in equity.
Public companies must prepare these reports under GAAP or IFRS. But investor-backed or expanding private companies rely on them too – for a clear view of financial performance across legal entities.
Importantly, consolidation doesn’t mean simply adding up numbers. Finance teams need to eliminate internal transactions like intercompany sales, loans, and shared costs. Without that step, financials show inflated revenue or duplicate assets.
Many companies also use ad-hoc reporting alongside their consolidated reports to explore entity-level issues or run quick internal checks without waiting for the group close.
Who Needs Consolidated Financial Statements and Why
If your company owns more than half of another business or has real control over it, you need to prepare consolidated financial statements. This applies to companies with multiple legal entities, like a manufacturer with regional plants, a retailer with country-specific operations, or a pharma group managing R&D through separate entities.
These reports are not just for auditors. They give finance teams a clear picture of cash flow, profitability, and performance across the group. Without them, planning turns into guesswork.
Take a holding company with a dozen subsidiaries. Each one sends reports in a different format, with its own chart of accounts. Trying to forecast group cash flow means merging spreadsheets for days.
Companies preparing for investors or lenders also rely on consolidated statements to show financial strength. Many teams use them alongside structured financial statement analysis to spot trends and make better decisions.
Core Components of a Consolidated Financial Statement
Every consolidated financial statement includes a few essential reports. Together, they give a full picture of how the business group is doing.
- Income statement adds up revenue and expenses across all entities but removes anything internal. That includes intercompany sales, services, or interest payments.
- Balance sheet shows the group’s financial position: what it owns, owes, and how it’s funded. Internal receivables and payables are excluded to avoid double-counting. If you’re not sure how accounts are structured, our guide on the classified balance sheet explains it simply.
- Cash flow statement tracks how money moves in and out across the group. For companies using the direct cash flow method, this step is more hands-on but gives clear visibility.
- Equity section is part of the balance sheet. It shows share capital, retained earnings, reserves, and any minority ownership in subsidiaries.
- Statement of changes in equity is a separate report. It shows how each part of equity changed during the period—profits, losses, dividends, or capital changes.
Condensed vs Consolidated Statements
A condensed statement is a short summary. It leaves out the details and just shows the main totals. Teams use it for quick updates or internal check-ins.
A consolidated statement tells the full story. It combines financials from all entities, removes internal transactions, and follows official reporting rules. This is the version investors, lenders, and auditors care about. It’s also the one your team needs for accurate planning.
Combined vs Consolidated Financial Statements
Combined financial statements list each company separately and keep everything in, including internal deals. Consolidated statements merge everything into one report and remove intercompany eliminations. Use combined to compare entities side by side. Use consolidated when you want the full group picture.
The Consolidation Process, Step-by-Step
Here’s how finance teams actually get consolidation done:
- List all entities that need to be included
Start with every company the group controls. If the parent owns more than half, or if it directs decisions, it goes in. This includes foreign subs, holding companies, or anything with a legal structure under the group. - Align fiscal calendars and accounting rules
Everyone needs to speak the same language. If one entity closes in March and another in December, you’ll have to adjust for timing. The same goes for accounting standards. Bring everything to a common format.
- Collect the numbers
Pull trial balances, ledgers, and cash flow data. You’ll probably need to work across multiple ERP systems and Excel files. This step gets messy without clear deadlines and templates. - Remove intercompany activity
Cancel out sales between subsidiaries, internal loans, and shared services. This avoids inflating revenue or double-counting expenses. Use reconciliations to make sure payables match receivables. - Account for partial ownership
If you don’t own 100%, show the share that belongs to outside investors in a separate line. That’s your non-controlling interest. - Convert currencies
For international groups, translate local results into the group currency. Use consistent FX rates and methods. Small differences can turn into big problems at the audit. - Review the full picture
Once you pull it all together, step back. Check for strange swings or mismatches. Financial statement analysis can help you catch anything that doesn’t make sense before you close.
Cost, Equity, and Full Consolidation Methods
The way you report an investment depends on how much control you have. If you own less than 20%, and don’t influence operations, you use the cost method. You record the purchase price as an asset and only log dividend income when it comes in. For example, if you own 10% of a startup and get €5,000 in dividends, that’s your income, nothing more.
If you own 20–50%, you likely have influence, so you use the equity method. You still log your original investment, but you also recognize your share of the subsidiary’s profits or losses. Own 30% of a logistics company? If they earn €1 million, you record €300,000.
Above 50%, you control the company. That means full consolidation: you combine their financials with yours, line by line, and remove internal transactions.
To choose the right method, you need a clear breakdown of ownership and influence. Account analysis can help you decide how each investment should be treated.
Goodwill & Acquisition Accounting
Goodwill shows up when a company buys another for more than the value of its net assets. That extra value often reflects brand strength, customer loyalty, or market position — things you can’t list on a balance sheet. Goodwill is recorded as an intangible asset and must be tested annually for impairment. If the acquired business underperforms, that goodwill might need to be reduced.
Example: A parent company buys a subsidiary for €5 million. The fair value of that subsidiary’s net assets is €4 million. The €1 million difference is booked as goodwill on the balance sheet.
For accurate reporting and audit prep, this process needs clear documentation. A review engagement can help validate your numbers.
Consolidated Financial Statement Requirements: GAAP vs IFRS
If your company follows US GAAP, you’ll need to look at ASC 810. It tells you when to consolidate, how to handle non-controlling interests, and what needs to go in your notes.
For companies reporting under IFRS, the rules are in IFRS 10. It defines control, explains when you need to consolidate, and lays out how to keep your accounting policies consistent across all entities. IFRS 12 adds a list of what you need to disclose about the group’s structure and financial results.
No matter which standard you follow, you’ll need to show your consolidation method, how you treat foreign currencies, what you include or eliminate between entities, and how you report non-controlling interests. These details help others understand how your group operates and how you got your final numbers.
Common Problems Finance Teams Run Into
A lot of finance teams still rely on Excel to consolidate across entities. That means broken formulas, version mix-ups, and hours spent cleaning up numbers. Things get slower when companies use different charts of accounts, close on different dates, or work in separate ERPs like SAP, NetSuite, or QuickBooks. Some teams also struggle with late data, mismatched formats, or unclear ownership of adjustments. Currency differences and late intercompany eliminations drag out the close and cause issues during audits.
Example: A global food manufacturer had this exact problem across 70 legal entities. After moving to a cloud-based consolidation tool, they were able to automate key workflows, align their systems, and close faster with fewer errors. They also freed up the team to spend time on analysis instead of chasing spreadsheets.
When your numbers aren’t clean, even simple balance sheet ratios can give you the wrong signal. That’s why getting consolidation right matters.
Modernizing Consolidation: Tools and Tactics
As mentioned earlier, Excel works up to a point. But when you’re managing several entities, the versatile and trusty tool starts slowing you down. Errors pile up, and closing the books takes longer than it should. That’s the reason why more finance teams are switching to tools built specifically for consolidation.
Good software speeds up the close, keeps your data accurate, and helps your team focus on planning, not fixing numbers. When you’re choosing a tool, here’s what to look for:
- Easy connections to your ERP and general ledger
- Automatic intercompany eliminations
- Reliable currency conversion
- Support for non-controlling interests
- Flexible chart of accounts mapping
- Built-in checks to catch errors
- Clear audit trails and user access controls
- Real-time collaboration across teams
- Smooth handoff to planning and reporting tools
To make this shift easier, we wrote a full guide on finance automation.
Farseer is a tool that helps finance teams move faster. It handles eliminations, currency conversion, and non-controlling interests automatically. But more than that, it connects your numbers straight into planning and forecasting. So instead of just ticking a box for compliance, you use consolidation to run the business better.
Key takeaways
- Consolidated financial statements show the full picture across all entities.
- Required when your company controls other businesses.
- Key steps include eliminating intercompany activity and aligning accounting policies.
- Manual consolidation in Excel slows teams down and increases risk.
- Automation improves speed, accuracy, and audit readiness.
- The right tools connect consolidated data directly to planning and forecasting.
- Clean numbers help you make better decisions, not just meet compliance.
