Question

2. Explain why consolidated financial statements are useful to the users of financial statements (as opposed to just the parent company’s separate financial statements.

Answer 1

Consolidated Financial statements refer to the financial statements of group companies as a whole. These financial statements show the financial position of the company along with its group companies apart from separate financial statements.

Whenever an investor invests in a particular company, he seeks the information of a group in which he is willing to invest because there are so many companies in which the particular company has invested and also many companies have invested in this particular company which we can say sister concern of the company. Subsidiary and Associate company of standalone company reflects the profits or losses of the other company merged with the specific company and the consolidated financial statements are prepared and also these are audited by another auditor. Separate financial statements can show the position only of standalone financial statements of a company and managing affairs of only one company can be tested but to invest in a group, the detailed information is necessary which is possible only once the whole group financial statements can be checked i.e. Consolidated Financial Statements.

For Example- If I want to invest in Reliance Telecommunications which is basically JIO but I don't have any information about Reliance Petroleum, Reliance Trends, Reliance Fresh which are the other group companies, maybe the other companies are going in the loss but only JIO is profit-making. And when we see Reliance as a whole, then we are able to see the clear picture of the group and accordingly, we can take a better decisions for investment purposes. This is why Consolidated Financial Statements are more of use.