Consolidated financial statements is the financial reporting of a group of interconnected organizations considered as a single economic entity or as a consolidated group. It describes the group’s property and financial position as of the reporting date, as well as its financial performance for the reporting period. A characteristic feature of consolidated group accounts is that the assets, liabilities, revenues and expenses of two or more legally separate entities are combined into a separate system of financial statements.
The accounting records of the consolidation group (concern) (hereinafter also a consolidated financial statement) include, in addition to the business transactions of the entity responsible for accounting, under its dominant influence
Dominant influence is the ability to make decisions about the financial and operational policies of a subsidiary.
Requirements for consolidated financial statement
- parent and subsidiary must have one accounting period
- the accounts of the subsidiary and the parent enterprise must be in the same currency
- The subsidiary and the parent should have common accounting standards
When to submit a consolidated financial statement
According to RTJ 11 on accounting in Estonia, the main indicator for determining the influence of a related enterprise (dominant or significant) is the presence of control over that enterprise. Control may also exist if the participation of the parent enterprise is less than or equal to 50 per cent, but the parent enterprise (RTJ11 p.8):
1) has control over more than 50% of voting rights by agreement with other investors,
2) Supervises the financial and operational policies of the enterprise on the basis of a contract or charter;
3) Be able to appoint and withdraw most of the existing guidance and parent bodies;
4) has the power to determine the decisions of the assemblies of the current leadership and the higher-ranking bodies.
If the above conditions are met, the enterprise under control is considered to be a subsidiary and must be consolidated.
Payment of dividends by the subsidiary to the parent
According to Article 335 of the Estonian Commercial Code, the parent enterprise, which prepares a report for the economic year in the consolidated group, decides on the distribution of profits on the basis of consolidated reports of the consolidated group. Even if there is no obligation to compile a consolidated report, and they did not voluntarily consider it necessary to do so, the parent enterprise may transfer to its owners the dividends declared by the subsidiary on the basis of the annual accounting report with identical accounting periods if it does not reflect the subsidiary’s accounting at acquisition cost, a by sharing.
According to the report, it is possible to reflect the subsidiaries as a solo report of the parent enterprise, and, in the case of the consolidated annual accounting report, in the parent’s non-consolidated annual accounting report, the acquisition cost method or equity method.
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