Are consolidated or combined financial statements best for a business?
Financial statements are essential for businesses, from international corporations to limited liability companies. These statements give investors a detailed and accurate picture of a company’s financial strength and help the company make important decisions to support business growth.
When businesses consist of multiple businesses, it is important to consider whether to prepare a consolidated or combined financial statement detailing each business’ profits, profits, losses, and more. Such an undertaking can be a complex and confusing process, and CPAs are crucial for businesses as they strive to create accurate statements for investors, shareholders, decision makers and other affected parties. Here are some things you should know about consolidated and combined financial statements.
Financial statements are essential for any type of business. They give an accurate overview of the company’s financial health, including assets, liabilities, revenue, and other aspects of a company’s finances. Financial statements should include a balance sheet, income statement, equity, and cash flow statement. Financial statements are necessary for businesses of any size.
Combined and consolidated financial statements come into play when there are multiple businesses involved. A parent company and its subsidiaries will need to determine whether a consolidated or combined statement is best.
In a consolidated financial statement, the financial results of the parent company and all of its subsidiaries will be presented together in one statement. A company may choose to use this statement if there are tax advantages to compiling the financial statements. A CPA can determine each year whether a business will benefit by using a consolidated statement. The profits and losses, liabilities and charitable contributions of individual subsidiaries can be more beneficial to the business as a whole in a year. The following year, it may be best to keep them separate due to tax credit limitations.
A consolidated statement can be used by private or public companies. However, public companies are subject to different requirements under GAAP. In most cases, a public company that owns at least 50% of the voting shares of the subsidiary should use a consolidated statement. A public company like PepsiCo will use consolidated financial statements for PepsiCo Beverages, Frito-Lay, Quaker Foods and its other major brands. This consolidated statement gives investors a good overview of the financial health of PepsiCo as a whole.
If a parent company is not required to use consolidated financial statements, it may choose to use a combined statement. A combined statement includes separate financial statements for the parent company itself and each of its subsidiaries. These statements will show the financial health of each individual business. Although each subsidiary has its own financial statements, these statements would be prepared in the same manner as a consolidated statement. In the consolidated and combined statements, financial transactions between the companies are not disclosed.
Prepare an accurate statement
From large corporations to small LLCs, providing accurate financial statements is essential for investors, auditors and tax authorities. Having the right technology at your disposal can make preparing the most complex statements easier and less time-consuming. With the help of cloud technology, automation, and tools like visual reporting software, pre-built and custom templates can automatically create comprehensive, easy-to-understand reports.
Consolidated and combined financial statements are all about telling a company’s financial story, and the right tools will help eliminate confusion and tell the story accurately. Whether the target audience is an investor or an auditor, it’s easy for big data to become overwhelming and the big picture can get lost. A visual report can make it easier to spot trends and highlight relevant data points.
Combined and consolidated financial statements can be complicated, and it is essential to have them prepared by a CPA expert. Each year, CPAs can determine what type of statement is best for the business or required. With visual and cloud-based reporting technology, skilled CPAs can be an invaluable asset in preparing monthly, quarterly, and annual financial statements.