Question

What are the Exceptions to not to consolidate the financial statement and what are the benefits of consolidating the financial statements?

Answer 1

Parent companies are required to prepare the consolidated financial statements in order to report on the the financial health and condition of both the parent company and all its subsidiaries..

Exceptions to the consolidation of the financial statements are as follows:

1. An Investment entity is not required to consolidate its subsidiaries unless the investment entity’s subsidiaries is involved in providing investment related services like investment management services.
2. If the company itself is a wholly owned subsidiary of another company..

Benefits of Consolidating the Financial Statements:

1. Complete overview: Consolidating the financial statements aids businesses by giving all the interested parties like the investors , financial analysts , owners etc by giving them complete information on the condition and health of the company and the effect that subsidiaries have on the parent company.
2. Minimizing the paperwork: Consolidation of financial statements reduces the paperload to a great extent and that aids in reducing the huge overload of paper documents and therefore the companies can easily track any of their documentation or records and can also assess the health of the organization in an easier and quicker ,manner.
3. Simplification: In the process of consolidation the entries between the parent and the subsidiaries are cancelled and in the bargain making it easier to understand the business functioning and its performance.