Consolidated financial statements: Less effort, more clarity

The most important facts in brief

The consolidated financial statements are a key mandatory task for all parent companies that exercise a legal or economic influence over subsidiaries. They combine the financial data of all group companies and provide investors, shareholders and other stakeholders with a clear overview of the financial situation at group level. The consolidated financial statements fulfill two central purposes: transparency regarding the overall economic situation and compliance with legal requirements, in particular in accordance with the standards of the German Commercial Code (HGB) or the International Financial Reporting Standards (IFRS).

The main components include the consolidated balance sheet, the income statement, the cash flow statement, the notes to the consolidated financial statements and the Group management report. The consolidation of the individual financial statements enables a uniform presentation of the net assets, financial position and results of operations. Today, modern technologies such as automation software and AI-based tools make preparation much easier and ensure error-free results.

What are consolidated financial statements?

Consolidated financial statements are the consolidated presentation of the financial situation of a group consisting of a parent company and several subsidiaries. In contrast to the annual financial statements, which only relate to individual companies, all relevant financial data for the entire group is brought together here. The aim is to create a clear overview of the overall economic situation at group level.

The consolidated financial statements are particularly important for:

• Investors and shareholders: it provides them with transparency about the financial stability and profitability of the Group.
• Lenders and banks: These use it to assess creditworthiness and credit standing.
• Management: Strategic decisions are often based on the key figures from the consolidated financial statements.
• Authorities and legislators: The consolidated financial statements are used to comply with statutory regulations and standards such as HGB, IFRS or US GAAP.

A key advantage of the consolidated financial statements is their ability to present the net assets, financial position and results of operations in a uniform manner. It eliminates double offsetting, which can arise due to shareholdings within the Group, and therefore provides a realistic picture of the Group's economic strength.

The legal basis of the consolidated financial statements

The consolidated financial statements are subject to strict legal regulations that ensure that all relevant financial data of a group is recorded correctly and uniformly. The legal basis varies depending on the legal form and registered office of the company, with the German Commercial Code (HGB) being the most important in Germany. For internationally operating companies, the International Financial Reporting Standards (IFRS) also apply .

Who is obliged to prepare consolidated financial statements?

All parent companies are obliged to prepare consolidated financial statements if they:

• Hold majority interests in subsidiaries that form a single economic entity.
• Exercise legal or constructive control over other companies.

Corporations and large corporate groups in particular must carry out consolidation in order to meet their legal requirements.

Mandatory preparation in accordance with HGB and IFRS

• The HGB (Section 290 et seq.) regulates the requirements and components of consolidated financial statements in Germany. In particular, companies that do not prepare their accounts in accordance with international standards follow these regulations.
• IFRS apply to listed companies worldwide and prescribe detailed rules for consolidation. They place particular emphasis on the comparability of financial statements between different countries.

Important deadlines and consequences

• Consolidated financial statements must generally be published within six months of the end of the financial year.
• Failure to comply with the deadlines can lead to legal consequences and penalties.

These legal requirements ensure that the net assets, financial position and results of operations of a group remain transparent and comprehensible. At the same time, they promote the trust of investors and other stakeholders.

Components of the consolidated financial statements: an overview

Consolidated financial statements consist of several components that are clearly defined by the principles of consolidated accounting. The aim is to ensure a uniform and transparent presentation of the financial position of the entire Group. These components are prescribed by law and are based on the requirements of the German Commercial Code (HGB) and the International Financial Reporting Standards (IFRS).

The definition of the individual components shows how they comprehensively reflect the overall economic situation of a group:

1. Consolidated balance sheet: This provides an overview of the Group's assets, liabilities and equity.
2. Consolidated income statement: This shows the Group's earnings position, including sales, costs and net profit.
3. Cash flow statement: This shows the cash flows within the Group and divides them into operating, investing and financing activities.
4. Statement of changes in equity: This component documents the development of equity over the reporting period.
5. Notes to the consolidated financial statements: In the notes, figures and methods are supplemented by detailed explanations, for example on accounting and consolidation guidelines.
6. Group management report: The management report analyzes the overall economic situation of the Group and provides insights into future developments.

The components at a glance:

The application of group accounting ensures that these components accurately reflect the net assets, financial position and results of operations of a group. This is not only crucial for compliance with legal requirements, but also for comparability at international level.

Innovation in the consolidated financial statements: modern trends and technologies

The preparation of consolidated financial statements is constantly evolving - new technologies and innovative approaches are changing the way companies prepare their consolidated financial statements. The focus is on efficiency in order to make the process faster, more transparent and error-free.

Automation and cloud solutions

Modern software solutions offer the possibility of automating numerous processes in the consolidated financial statements. This applies, among other things:

• Data consolidation: Financial data from different subsidiaries is automatically merged.
• Compliance with regulations such as IFRS or HGB by integrating regulations directly into the software.
• The cloud technology that enables global access and simplifies collaboration between parent companies and subsidiaries.

Artificial intelligence (AI)

AI is becoming increasingly important in group accounting. With its help:

• errors in the data can be detected and rectified more quickly.
• forecasts on financial development that go beyond the traditional consolidated financial statements.
• patterns can be identified in large data sets in order to gain better insights into the earnings situation and other key figures.

Sustainability reporting and ESG trends

Another significant trend is the integration of sustainability reports (ESG: Environmental, Social, Governance) into the consolidated financial statements. Investors and stakeholders are increasingly demanding transparency about a company's impact on the environment and society. The combination of financial and non-financial reports is becoming increasingly important.

How the consolidated financial statements strengthen the company's success

Carefully prepared consolidated financial statements are far more than a mere legal obligation. They serve as an indispensable management tool that can have a significant influence on the economic success of a company.

Strategic basis for decision-making

The consolidated financial statements provide precise and consolidated information that serves as a basis for strategic decisions. Companies can:

• Prioritize and evaluate investments based on the financial situation.
• Identify weak points in the earnings situation and take targeted measures.
• Improve your communication with investors, lenders and other stakeholders to build trust.

Transparency and trust

The consolidated financial statements strengthen the credibility of the company through a clear and uniform presentation of the net assets, financial position and results of operations. This transparency:

• Promotes the trust of shareholders and investors.
• Supports internal management and motivation, as employees better understand the economic objectives.
• Simplifies cooperation with external partners such as banks and supervisory authorities.

Efficient management of the Group

A detailed analysis of the consolidated financial data is possible:

• Precise monitoring of the financial results of individual subsidiaries.
• The optimization of resources and processes at Group level.
• Setting targets that are based on the actual economic situation.

Long-term advantages

Well-structured consolidated financial statements not only create the basis for operational decisions, but also for long-term competitive advantages. Companies that continuously optimize their consolidated financial reporting can react more quickly to market changes, reduce costs and strengthen their position in the market.

Frequently asked questions

What is the difference between annual financial statements and consolidated financial statements?

The annual financial statements refer to the financial reports of an individual company. The consolidated financial statements, on the other hand, consolidate the financial data of the parent company and its subsidiaries in order to present the overall financial position of the entire Group. The aim is to create a uniform and transparent overview of the net assets, financial position and results of operations at Group level.

What do consolidated financial statements mean?

The consolidated financial statements are the consolidated presentation of a group's financial position. They combine the individual financial statements of the parent company and its subsidiaries in a joint report. This serves to provide stakeholders such as investors, shareholders and banks with a clear overview of the financial situation of the entire Group.

When must consolidated financial statements be prepared?

As a rule, consolidated financial statements must be prepared if:

• A parent company holds a majority interest in one or more subsidiaries and these form an economic unit.
• The parent company exercises legal or de facto control over the subsidiaries.

The deadlines for preparation and publication depend on the legal requirements, such as the German Commercial Code (HGB) or IFRS.

Who is obliged to prepare consolidated financial statements?

All parent companies that meet the above criteria are obliged to prepare consolidated financial statements. Large corporations and listed companies in particular are subject to this obligation in order to ensure transparency and comparability.