Consolidated accounts: adding up a group without double counting

Consolidated accounts present a parent company and the companies it controls as if they were a single business. The arithmetic sounds like addition and is mostly subtraction: anything the group did with itself has to come out, because a sale from one subsidiary to another has not earned the group anything. Getting the eliminations right is the whole exercise, and the reason a group with three subsidiaries can take a fortnight to close while a single company takes three days.

Who has to prepare them

• Any parent that controls one or more subsidiaries, where control usually means the power to direct the activities and take the benefit — not simply a majority of shares.
• Exemptions exist for small groups in many jurisdictions, and for intermediate parents whose own parent consolidates them. Both are worth checking before doing the work.
• Where a subsidiary is held only for resale, or the group is exempt, the parent may present its own accounts alone — but that has to be a decision with a stated basis, not an omission.
• Joint ventures and associates are not consolidated line by line; they come in under the equity method as a single figure, which is a different and simpler exercise.

What consolidated accounts eliminate

1. Intercompany balances: what one entity owes another nets to nothing at group level, and the two sides must agree to the penny before you start.
2. Intercompany trading: sales and purchases between group companies come out of both revenue and cost.
3. Unrealised profit in stock: where one company sold to another at a margin and the goods are still on the shelf, the margin has not been earned and must be removed.
4. The parent’s investment in each subsidiary, against the subsidiary’s share capital and pre-acquisition reserves — the difference is goodwill.
5. Dividends paid within the group, which otherwise appear as income the group paid itself.
6. Non-controlling interests are presented, not eliminated: the group consolidates everything and then shows the share that belongs to outside shareholders.

Intercompany reconciliation is where the time goes, and it is almost never an accounting problem. It is a timing and process problem: one side raised the invoice in March and the other posted it in April, or the two entities use different exchange rates, or one recorded a recharge nobody agreed. Fixing it monthly takes minutes; fixing it once a year at consolidation takes a week and produces adjustments nobody can explain.

What makes it slow, and what makes it fast

• A shared chart of accounts across entities, so mapping is not a manual step every period.
• Agreed intercompany rules: who raises the recharge, at what point, and at what rate.
• A single agreed exchange rate table per period, published rather than each entity choosing.
• Aligned reporting dates. Where a subsidiary has a different year end, the standards limit how far apart they may be and additional work follows.
• Monthly intercompany matching rather than annual, which is the single change that most reduces the close.
• Consistent accounting policies across the group — a subsidiary applying different revenue recognition has to be restated, and finding that at year end is expensive.

Where the consolidation lives

Ettex Books can carry the individual entities and the eliminations as a working set, which for a small group of two or three companies is usually enough — the value comes from the intercompany balances being visible monthly rather than reconstructed annually. Keep the elimination workings with the period they belong to, since the question later is always why a number differs from the sum of the parts. Ettex is not group consolidation software and does not produce statutory group accounts in a filing format; above a handful of entities, or with foreign currency subsidiaries, a dedicated consolidation tool and your auditor will do this properly. What this prevents is the reconciliation being someone’s spreadsheet.