What are consolidated financial statements?

Consolidated financial statements are the overall group’s financial statements. They represent the total of the parent company and all subsidiaries that are controlled by the parent company. They include all three key financial statements; income statement, cash flow statement, and balance sheet.

In a broad sense, consolidation is defined as the action or process of combining things into a more effective or coherent whole. In accounting, the definition of financial consolidation can be summarised as:

“Combining the assets, liabilities and other financial items of two or more entities into one consolidated entity.”

That involves the consolidation of financial statements, where all subsidiaries report under the umbrella of the parent company.

Even if the subsidiaries are separate legal entities to the parent company, and therefore record their own financial statements, they are still included in the consolidated group financial statement. It is also possible to have consolidated financial statements for a portion of a group of companies. For example, some groups may produce consolidated financial statements for one of their subsidiaries and those other entities owned by that particular subsidiary.