Consolidated versus consolidating financials
If a company holds a stake in another company it is referred to as the ‘parent company’.The second company can either be a ‘subsidiary’ or an ‘associate’, depending on the percentage owned by the parent company and is referred to as the ‘holding company’. Side by Side Comparison – Combined vs Consolidated Financial Statements 5.Continuing from the above example, With this approach, the results of the holding company are amalgamated into the financial statements of the parent company.This provides the opportunity for investors to view results in a complete and accurate manner.Many large scale organizations use consolidated financial statements at the year-end due to its increased accuracy and as it is required by law if the stake of ownership exceeds 50%.
When a subsidiary or affiliated entity is a sizable operation, a parent company’s financial statements may not fully reflect its true exposure to all attached elements of its business.(Some countries do not allow overseas companies to start businesses without a partnership with a domestic company in the home country).Such acquired stakes should be recorded in the financial statements.While a parent company may not have managerial control of a subsidiary, they could have significant exposure to the financial and operational dealings of the subsidiary.For instance, a multinational enterprise may experience political risk in another region. based oil exploration and production company had significant holdings and operations in Egypt.