Interpretation and Application of UK GAAP: For Accounting Periods Commencing On or After 1 January 2015

Chapter 6Consolidated and Separate Financial Statements

1. Introduction
2. Identifying a Group
3. Small Groups
4. Exemptions from Preparing Group Accounts
5. Exclusions from Consolidation
6. Principles of Consolidation
7. The Purchase Method
8. Goodwill in a Business Combination
9. Step Acquisitions
10. Disposal of a Subsidiary
11. Deemed Disposals
12. Merger Accounting
13. Separate Financial Statements
14. Disclosure Requirements

Introduction

In the broadest terms, when a business controls another business it is required to prepare consolidated financial statements (often referred to as ‘group financial statements’). The requirement to prepare consolidated financial statements is contained in the Companies Act 2006 and in Section 9 Consolidated and Separate Financial Statements. Both the Companies Act 2006 and Section 9 set out the manner in which consolidated financial statements are prepared. The overarching objective of consolidated financial statements is to show the results of a group of companies in line with its economic substance, which is that of a single reporting entity (in other words, as if the group structure never existed). This is down to a variety of requirements, but in general many companies operate through complex structures for a variety of reasons under the control of a parent company. For that reason, the parent company's financial statements alone will not give the complete picture of its economic activities or financial position. The objective, therefore, of consolidated financial statements ...