Consolidated financial statement – a useful management tool!

Consolidated financial statement – a useful management tool!

A consolidated financial statement is always worthwhile. It offers more transparency for all stakeholders and provides more clarity for the financial leadership of corporate groups.

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.

Often wrong basis for financial leadership

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:

  • in which cases a consolidated financial statement is defined by the law
  • what are the advantages of a voluntary preparation of a consolidated financial statement.

Legal Obligation to prepare a consolidated financial statement

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:

  • Balance sheet total of over 20 Million Swiss francs
  • Turnover of over 40 Million Swiss francs
  • More than 250 full time jobs on average

Even if the indicators show are not met, a consolidated financial statement has to be prepared in the following cases:

  • If this is necessary for an a reliable judgement of the economic situation oft group of enterprises
  • If associates holding more than 20% of the share capital demand a consolidated financial statement

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.

How is a consolidated financial statement prepared

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.

Advantages of a consolidated financial statement

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:

  • The correct and adjusted shareholders’ equity of the group of companies, which is – in most cases – higher than the shareholders’ equity of the individual company
  • The adjusted group turnover with third parties
  • The adjusted cost structure, caused by expenditures to third parties
  • The adjusted group earnings without intercompany relations and interim gains

At the same time:

  • The financial situation is shown transparently
  • The information of shareholders and other stakeholders is improved
  • The confidence and trust of lenders and credit institutions is improved

If you want to improve trust in your group financial statements and the financial leadership a meeting with our expert Marcel Lederer might make sense.

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