The financial consolidation process in a corporation usually begins with capturing business transactions and events and closing sub ledgers into general ledgers. It often involves reconciliations of financial statements from different subsidiaries as well as dealing with minority interest and intercompany transactions . As companies grow, so does the number of entities needing to be consolidated. The consolidation process can be complicated for corporations with multiple subsidiaries and associates, especially when their consolidation system is manual, or not integrated.
Tracking intercompany transactions is perceived as one of the most common problems with financial consolidation Intercompany transactions are transactions that happen between two entities of the same company. Not adjusting intercompany transactions results in consolidated financial statements that do not offer a true and fair view of the group’s financial situation.
In this article, the relationship between a subsidiary and a parent company will be viewed in detail to address issues relating to minority interest and how they pertain to financial consolidation.
Before we discuss financial consolidation, it’s important to note the following definitions (IAS 27):