Consolidated financial statements

What it means

Consolidated financial statements present a parent and its subsidiaries as a single business. Intragroup receivables, payables, sales and unrealised margin in stock are eliminated, so only what the group did with the outside world remains.

They do not replace the individual statements, which every company still prepares and files for itself. In Slovakia consolidated statements follow IFRS as adopted by the European Union, a different framework from the ordinary Slovak one.

Control decides, not the percentage alone. A company can be a subsidiary even where the parent holds less than half the votes, if it appoints most of the directors or directs its financial and operating policies; conversely, a majority stake without real power is not enough for full consolidation.

How it works in practice

The duty falls on the parent once the group as a whole crosses the size criteria in the Accounting Act. A small group is exempt, and so is a subsidiary already consolidated by a parent inside the European Union.

Subsidiaries under the parent’s control are taken in full, while associates and joint ventures come in under the equity method. The difference between the cost of the holding and the fair value of the subsidiary’s net assets is shown as goodwill.

Most of the work is agreeing intragroup balances. Before consolidation each group company agrees its ledger balances of intragroup receivables and payables with the others, and differences are corrected in the individual statements; at elimination there would be nowhere left to post them.

What to watch out for

A group outgrows the criteria and nobody notices until the first audit. Building the consolidation retrospectively means prior-year comparatives out of balances nobody ever reconciled, an extra audit on top, and a penalty for statements never filed.

A foreign subsidiary keeping its books in another currency and under local rules has first to be restated to IFRS and translated into euros, which creates FX differences on translation. Leave that to the last weeks before the deadline and the local accountant’s data is missing, and the whole set of statements runs late.