Review

• Subsidiaries must have the same reporting policies
• Uniform accounting policies for the parent and the subsidiaries;
• Review additional need for fair value adjustments at subsidiaries level.

When the accounting policies of a subsidiary differ from those of the parent, adjustments are made during consolidation.

• Balance sheet translated at year end rate.
• Profit and loss at average rate.
• Cash flow statement at year end rate except average rate for non-cash flow.

1. Balance sheet
2. Profit or Loss statement
3. Cash flow statement
4. Schedules like Property, plant and equipment, Taxation, related parties transactions, etc.
   

• Intra-group receivables and payables need to be cancelled out and they should be matching.
• Intra-group loans;
  • The matching asset and liability for the loan needs to be removed.
  • Accrued interest payable at the borrower needs to be cancelled out with the matching interest receivable at the lender.

Eliminate inter-company transactions:

• Eliminate sales and purchases (reverse the seller’s revenue and the buyer’s COGS by the same amount).
• Eliminate interest paid and received (reverse the payer’s interest paid and the payee’s interest received).
• Dividends from the subsidiary to the parent company are reversed because that is an intra-group transfer.
• Eliminate unrealised profit from stocks (sold between the parent and the subsidiary).

Hence, the consolidated financial statements only reflect external transactions and balances.

• Parent company investment – subsidiaries share capital & pre acquisition reserves = either positive, negative or nil goodwill.

Note that only the parent company’s share capital is included if the share capital of the subsidiary have not changed.

• Reserves (like foreign translation reserves);
• Non-controlling interests (if any);
• Investments; and
• Deferred tax

Prepare consolidated financial statements in accordance with the applicable financial reporting standards.

• At acquisition
• Step acquisition
• Change in degree of control
• Fair value adjustment post acquisition
• Goodwill computation
• Non-controlling interest (minority interest)

• IT and accounting systems are centrally controlled by the main office via a cloud-based system.
• Processes and controls centrally coordinated, including shared service environments.
• Monitor the timeliness, accuracy, and completeness of financial information received from subsidiaries.

• Monitoring subsidiaries’ performance, including regular evaluations, cash management, reconciliation of banks, trade balance, reports, and the ability to take appropriate action based on budgets.
• Subsidiaries management authority and responsibility.
• Reviewing performance and discussing business developments between management of the group and subsidiaries.

• In this process, risk is identified, analyzed, and managed (such as outstanding collections, inventories, cash flows, manpower strength, and tax matters).
• Management overrides, fraud prevention, detection, and mitigation procedures.
• Group-wide fraud prevention programs and codes of conduct.

• Monitoring, controlling, reconciling, and eliminating intra-group transactions and unrealized profits, and intra-group account balances at the group level.

• Consistent policies and procedures, including a group financial reporting procedures manual.