Today’s business environment is so demanding and competitive that any detail may make the difference between success or being left behind. Companies know this and therefore, many of them are consolidating their financial statements. This is a set of techniques that allow creating financial statements of a group of companies.
In consolidated financial statements the accounting information of a group of companies is presented as if were a single entity. Therefore, this financial tool allows entrepreneurs to have a unique vision and a complete overview of the economic reality of their business.
Benefits of financial statement consolidation
Financial statement consolidation makes it possible to show the true picture of a person’s assets. As well as, the results of a group of companies, therefore, their financial situation. To carry out this procedure to have this key information has its advantages.
These are the main advantages:
- It assesses the solvency or liquidity of the business group.
- Facilitates decision making for future investments.
- It allows for the consideration of takeovers, mergers or other business operations.
- Acts as a guarantee when applying for credit.
- Provides tools for better management.
How to consolidate your financial statements
The procedure for consolidating financial statements includes a thorough review of the information to ensure that it is consistent, that it is expressed in the same currency, that it has the same cut-off date, among other things. Only in this way can unified information be presented in the report.
These are the steps to follow to keep good control of financial statements:
Step 1: have individual financial statements of parent company and the controlled company.
Step 2: evaluate if the accounting policies of both companies are consistent. If this is not the case, it will be necessary to carry out a homologation of accounting policies.
Step 3: The cut-off dates for the financial statements of the companies must be the same. In case they are different, you will have to make some adjustments so that these dates are as close as possible.
Step 4: ensure that the companies’ financial statements are expressed in the same functional currency. Note that if they are issued in different currencies you will have to make a conversion of the financial statements.
Step 5: consolidate the financial information of the parent and controlled company. You must eliminate reciprocal items to avoid duplicate information.
Solutions for the Consolidation of Financial Statements
There are solutions that help you carry out the consolidation of financial statements. One of them is Prophix EPM Solution, a software designed to simplify, control and integrate financial systems in one place.
In addition to allowing the creation of budgets, as well as project planning, this solution has functions for consolidation and closure, allowing you to obtain a complete view of your financial management.
At Fusionworks we can provide you with this software that will help you consolidate your financial statements. Contact us and we will provide you with all the information you need to adapt your business.