Consolidated financial statement: A useful management tool
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For a group of companies an individual financial statement is not meaningful. Because the shareholders’ equity is influenced by the participations held and the intercompany relations need to be eliminated.
Our work shows, that financial leadership of smaller corporate groups is often based upon individual financial statements or internal management or financial reports. The resulting financial statements for the group often don’t tell the whole truth about the financial situation. This can be solved by preparing a consolidated financial statement.
We show:
Article 963 of the Swiss Code of Obligations indicates that a consolidated financial statement has to be prepared if one or more enterprises are controlled and if the following conditions are met:
If all enterprises of the group together exceed two of the three following financial indicators in two consecutive years:
Even if the indicators show are not met, a consolidated financial statement has to be prepared in the following cases:
If the company or the group of companies is controlled by another enterprise, that prepares a consolidated financial statement und Swiss law or equivalent foreign requirements, a consolidated statement can be waived.
During the preparation of such statement all group company financial statements are prepared or reconciled under the same set of accounting rules. In the next step the capital consolidation is prepared where the values of the participations are offset against the proportional shareholders’ equity. Finally all intercompany relations within the balance sheet and the profit and loss statement are eliminated to show only the relations of the group with third parties.
Even if the indicators shown above are not met it makes a lot of sense to prepare a consolidated financial statement. Substantial advantages result for the financial leadership tasks within a group, as with the elimination of all intercompany relations the following financial key factors become:
At the same time:
