Consolidated Vs Unconsolidated Financial Statements (2024)

FAQs

What is the difference between consolidated and unconsolidated financial statements? ›

A standalone statement represents a company's financial performance as a single entity, while a consolidated statement reports a company's financial performance on the whole. It includes information about its associate companies, subsidiary companies, and joint ventures.

GAAP-compliant companies or reporting entities must consolidate any legal entities in which they maintain a controlling financial interest. There are two primary consolidation models based on how much control a parent company has over a particular legal entity.

If you are trying to compare different companies from the same sector, then standalone statements can be a better idea. If you are analyzing a company that has subsidiaries in a similar line of business, then make sure that you look at consolidated statements.

The difference between consolidated and unconsolidated financial statements lies therein, explains information from Legal Zoom. An unconsolidated financial statement would treate each subsidiary separately from an accounting perspective, while a consolidated one accounts for every subsidiary together.

Consolidated financial statements are used when the parent company holds a majority stake by controlling more than 50% of the subsidiary business. Parent companies that hold more than 20% qualify to use consolidated accounting. If a parent company holds less than a 20% stake, it must use equity method accounting.

The following three major financial statements are required under GAAP: The income statement. The balance sheet. The cash flow statement.

Hence, for a company which is not a holding company but has associate companies or joint ventures or both, the consolidation of financial statement in respect of such companies is exempt for the first year of operation of the Act.

Because the parent company and its subsidiaries form one economic entity, investors, regulators, and customers find consolidated financial statements helpful in gauging the overall position of the entire entity.

Consolidated financial statements give a high-level overview of the company's financial performance. This is essential information for management teams, shareholders, investors, lenders and financial journalists.

Which companies require consolidated financial statements? ›

Parent companies are required to prepare consolidated financial statements, although there are a few exceptions.

Consolidation Disadvantages

Before making a decision to take a consolidation loan you need to understand these in the context of your circ*mstances. If you borrow money to consolidate debts, you will be charged interest on the new loan. As such, it is likely that your overall debt will increase.

Complete Overview – Consolidated statements allow investors, financial analysts, business owners and other interested parties to get a complete overview of the parent company. At a glance, they can view the overall health of the business and how each subsidiary impacts the parent company.

In consolidated financial statements, investments in such subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. The reasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements.

Unconsolidated subsidiaries are owned by a parent company, but their individual financial statements are not included in the consolidated financial statements of the parent company.

A separate financial statement reports on the finances of a single entity. A consolidated financial statement reports on the entirety of a company with detailed information about each subsidiary.

Consolidated financial statements are the overall financial statements of any entity with multiple divisions, including the parent company and all subsidiaries that are controlled by the parent company. They include three key financial statements; income, cash flow, and financial position.

A consolidated financial statement is a combination of a financial statement of a parent company and its branches. This statement is important to review the financial situation of the group of companies owned by one business.