Consolidated financial statements are an increasingly important consideration for larger, global organizations. In general, consolidated financial statements should be prepared by a dedicated team or a point person who can take ownership and be held accountable for the consistency and accuracy of their output. Let’s take a closer look at how you can successfully manage your organization’s financial consolidation process.
When to Prepare Consolidated Financial Statements
More companies are choosing to expand through the purchase of controlling portions of other companies’ voting stock. This type of acquisition can serve as a strategic investment and an entry point into a new industry while providing a stable source of certain goods.
A parent company is defined as a company that owns more than 50 percent of another company’s voting stock. Typically, both companies remain distinct legal entities. This means each organization is responsible for maintaining and preparing its own financial records and statements.
However, parent and subsidiary companies still operate within the same central management structure. As a result, it’s helpful to prepare a single set of consolidated financial statements that combine the financial figures of the parent company with those of its subsidiaries.
Consolidated financial statements give leadership and investors in the parent company a more complete picture of the entire enterprise’s financial standing. Just as a company can benefit from the advantages of its subsidiaries, it can also suffer from a subsidiary’s weaknesses.
Consolidated financial statements are also required under the generally accepted accounting principles (GAAP). According to the Financial Accounting Standards Board (FASB) guidelines, almost all subsidiaries, with few exceptions, must be included in a parent company’s consolidated financial statements.
Managing Financial Consolidation
Companies are still striving to attain their “one version of the truth” through the process of financial consolidation. This is particularly true for businesses that are:
- Operating globally
- Actively growing
- Comprised of many divisions
However, careful financial consolidation has the potential to add significant time to your close cycle. Having the right processes in place can make all the difference. Let’s take a look at how choosing the right people and tools can ease the burden of the financial consolidation process on your finance department.
Who should prepare consolidated financial statements?
Don’t let financial consolidation become an afterthought tacked onto the end of your close cycle. Part of successfully managing your financial consolidation process is explicit delegation. In general, consolidated financial statements should be prepared by a dedicated team or point person.
Often, placing the right people at the helm of an important task such as generating consolidated financial statements will guarantee success. When you place accountability squarely on a specific team or person, they’re more likely to step up and take ownership of the process. Having a dedicated team also helps promote process standardization, ensuring that the final results are consistent and accurate.
How do you choose the right tools?
Without the right tools, even a dedicated team that’s ready to tackle your company’s consolidated financial statements will struggle. That’s because an over-reliance on manual processes and support from your IT department can create inefficiencies that complicate and lengthen your consolidation process.
But with the right advanced software, you can help lift the burden from your consolidation team and create your consolidated financial statements faster. So how do you choose the best financial consolidation software for your needs?
First, it’s important to look not only at the functions you need today but also at the functions you may need tomorrow as your organization grows, including:
- Aggregating data from multiple sources
- Currency conversion
- Intercompany accounting
- Disclosure management
- Entity reorganization
- KPI calculations
- Easy ongoing maintenance
The best tools are flexible and scalable, growing with your business.
The financial consolidation process is riddled with specific, data-intensive, often manual tasks. This makes automation-powered software an obvious choice. By automating the manual tasks needed to generate consolidated financial statements, your financial department can make more strategic, meaningful contributions to the organization.
Lastly, it’s also important to remember that financial consolidation doesn’t exist in a vacuum. Although it’s an important function for your tax team, consolidated financial statements are just a piece of the larger puzzle, which also includes:
- Profit optimization
- Operational analysis
Choose an integrated solution with a common interface that can handle planning, tax provisioning, analytics, and other key financial processes as well. This will help connect and unify the different finance teams under the office of the CFO.
Stay Ahead of the Curve with the Right Consolidation Solution
Businesses are under increasing pressure to generate consolidated financial statements quickly with little room for error. Appointing a dedicated team and empowering it with the right software can improve the efficiency of your consolidation process, allowing your finance department to spend less time managing data and more time generating valuable insights.
For a more in-depth view on choosing the best tools for financial consolidation, check out our free guide: