What are Consolidated Financial Statements?

Consolidated financial statements are required when one company owns a controlling interest in another company.

They must adhere to the same accounting principals as a the financial statements for a single company. Some detail tends to be lost if the parent company and subsidiaries have very different operations.

If a company owns more than 50% of another company, their financial statements will be consolidated into one, according to GAAP. Up to that point, the interest in another company can be accounted for using cost-method or equity-method accounting.

The accounting methods for starting a consolidated statement once an acquisition has occurred can make for some interesting reading, but, as you might have guessed, it can get a bit complicated. The parent company and any smaller companies in which they own a controlling interest are considered a single economic entity.

This applies even in cases where two or three subsidiaries each own minority interest in a fourth company if, when taken together, they add up to a controlling interest. In Britain, consolidation is known as “amalgamation.”