Group accounts are an example of the 'substance over form' principle in financial reporting.
Some large businesses are organised as a single company. Other comparable businesses are structured as a group of companies, with a top holding company and other subsidiary companies.
If group accounts were not prepared, it would be very difficult to make appropriate comparisons.
The purpose of group accounts is to report the results and financial position of the businesses in a way that makes them readily comparable, even though they have different legal structures.
Consolidated group accounts report the activities of subsidiaries controlled by the holding company as part of the group's total activities.
They also treat the assets and liabilities of the subsidiaries as assets and liabilities of the group.
Appropriate proportionate interests in associated undertakings and joint ventures are also incorporated into the consolidated group accounts.
Preparing consolidated group accounts involves two stages:
- Aggregation to add up the individual assets and liabilities of all of the companies in the group.
- Consolidation adjustments to remove, for example, intercompany trading and indebtedness from the consolidated figures for the group.
The holding company of a group of companies is also sometimes known as the 'parent' company.
Businesses which are organised under a single company, rather than a group of companies, are sometimes known as 'divisionalised'.
(Their business units being a number of divisions, rather than a number of different companies.)
- Accounting exposure
- Accounting group
- Balance sheet exposure
- Consolidation adjustments
- Goodwill on consolidation
- Income statement exposure
- Merger reserve
- Net assets
- Parent company
- Substance over form
- Legal implications of cash pooling structures