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ACCOUNTING FOR BUSINESS COMBINATIONS
2.2.2. Limitations of the consolidated financial statements The consolidated financial statements have some restrictions, the most important of which are the following: - since financial results and the financial position of group members were not disclosed in consolidated financial statements, good or poor results of individual companies can be concealed by the results of other group members, - consolidated retained profits of the consolidated balance sheet are not entirely available for distribution as dividends because part of them may represent the parent`s proportion in undistributed branch profits, - financial indicators based on the consolidated financial statements are aggregate indicators which do not represent individual branch or the parent, - the individual balance sheet items are sometimes not comparable as to their quality for e.g. account receivable, - the consolidated financial statements do not provide additional information necessary for checking the individual members of the group, so they must be looked for in separate financial statements or notes to the basic financial statements of individual members. According to IAS 27, a parent company doesn’t need to make the consolidated financial statements in certain situations. The following table shows the situations in which the parent needs and does not need to prepare consolidated financial statements.
Table 1: The obligation to prepare consolidated financial statements Don’t prepare consolidated financial statements
Making the consolidated financial statements
* Apply the exemption from consolidation under IAS 27 Investor and all its subsidiaries made independent financial statements by an appropriate method
Parent prepares consolidated financial reports which adds separate financial statements for associates and jointly controlled entities
Source: Belak, V. (2006) Profesionalno računovodstvo prema MSFI i hrvatskim poreznim propisima, Zagreb, Zgombić&Partneri, p. 311th
2.2.3. The process of consolidation For the process of consolidation the following steps are necessary: