Consolidated group definition
/What is a Consolidated Group?
A consolidated group consists of a parent company and the subsidiaries it controls. For financial reporting purposes, the group presents consolidated financial statements that combine the assets, liabilities, revenues, expenses, and cash flows of the parent and its subsidiaries as though they were a single economic entity. Intercompany balances and transactions are eliminated during consolidation. For tax purposes, qualifying affiliated corporations can elect to file a consolidated federal income tax return with the Internal Revenue Service, subject to applicable ownership requirements and consolidated return regulations.
Example of a Consolidated Group
An example of a consolidated group is The Walt Disney Company and its subsidiaries. Disney, as the parent company, owns multiple subsidiaries such as Pixar, Marvel Studios, Lucasfilm, ESPN, and 20th Century Studios. When Disney prepares its consolidated financial statements, it combines the financial results of all these subsidiaries into a single report, eliminating intercompany transactions to provide a complete picture of the company’s overall financial health. This ensures that investors and stakeholders see Disney’s total revenues, expenses, assets, and liabilities as one unified entity rather than as separate companies.
Accounting for a Consolidated Group
In order to present consolidated financial statements, a parent company has to complete the following steps:
Convert the financial statement currency of each subsidiary to the home currency of the parent entity.
Identify and eliminate all intercompany transactions between the various entities.
Account for any non-controlling interests in the various entities.
Produce combined financial statements.
Terms Similar to Consolidated Group
A consolidated group is also known as an affiliated group.
Consolidated Group FAQs
How are foreign subsidiaries treated in a consolidated group?
Foreign subsidiaries generally are consolidated when the parent controls them. Their assets, liabilities, revenues, and expenses are included in the consolidated financial statements, intercompany balances and transactions are eliminated, and foreign-currency financial statements are translated into the parent’s reporting currency under applicable accounting standards before consolidation.