Group Consolidation – What is Group Consolidation?
Definition: Group consolidation is the combination of financial statements for separate companies to produce a single entity.
If you belong to a group of companies then, at some stage of the financial reporting process, a group consolidation will be required in order to establish the total group's financial position.
Process of Group Consolidation
A group consolidation is normally performed by what is referred to as the parent company. Most companies working within a group could well have a standard chart of accounts as the business module would be pretty much the same. There may be a need to have differences if companies within the group are located in different parts of the world, as currency and taxation can play a big part in the group consolidation.
The companies within the group may report their financial statements in their native currency or they may well convert this into the base currency of the group at a fixed exchange rate driven by the parent company.
Within a group consolidation there will invariably be what is called an intercompany account. This is where charges from the parent company are passed down to the companies within the group for them to record in their individual financial statements, common ones would be royalties and interest on any loans.