What is financial consolidation?
Financial consolidation is the process of representing income and expenditure related groups of enterprises in a single set of financial statements or in one tax return. The enterprise is related to other trade, if it is own or is completely or partially owned by this trade. This type of arrangement is referred to as a parental subsidiary relationship. Consolidation allows multiple -related subsidiaries to treat as one company under the umbrella of the parent holding company. This means that business has most of the same rights and obligations as any individual citizen. It works under its own name, can conclude, sue or sued, own property and must pay taxes as if it were a person. Businesses can also own other businesses and often do so to complement operations such as a method of expansion or diversification, investment, as a means of spinning discrete areas of current operations into separately functioning companies. In some countries like the US, France, Australia andNew Zealand, does not have to publish separate financial statements that are part of a group of parents who are submitted. Through financial consolidation, the parent company can publish one set of a statement that reflects the accounting of all companies in the group.
Financial consolidation treats more companies in the related group of parents-Subsidia companies as one entity. The statement is published under the name of parent companies, while the financial impact of subsidiaries is reflected as if companies were parents of parents. The reasons for this IS presentation to be more efficient to meet messages and introduce a better picture to investors on how the entire business group will connect.
In the US, financial consolidation is specifically allowed by the National Tax Act. Allows a group of companies related to file one consolidated tax return under the auspicesparents. The parent is responsible for fulfilling all tax obligations of subsidiaries and centralize the federal function of observance of taxes for the whole group in one entity. The parent is not obliged to consolidate the funds of their subsidiaries, but there is a certain amount of favorable tax treatment that a consolidated group can enjoy that is not available to entities separately.