Consolidated vs consolidating financials
With so many business formation choices available, how do you decide what's best for your business? Find answers to common questions in our comparison of LLCs and LPs.If you’re the head of a new LLC, you’ve got a lot to do – including choosing a title for yourself.When deciding whether to file a consolidated financial statement or a combined financial statement, it's a good idea to check with your financial advisor or accountant as to which he or she recommends.When, however, the parent company owns more than 50 percent of a subsidiary, you will have no choice—you must file a consolidated financial statement.In short, the new standard requires that these types of entities be consolidated into the financial statements of the entity that benefits the most from their operating income and who holds the risk to absorb any operating losses and liabilities (i.e. It sounds easy enough, but as practitioners can attest, the standards are extensive and a bit confusing, which continues to result in ‘diversity in practice'.For instance, with the advent of FIN 46, many in public and private accounting practice interpreted the new literature as precluding the use of combined financial statement presentation.The benefit of a consolidated financial statement is that it shows the overall economic wealth of the parent company and its subsidiaries together.
assessing the individual components—will help you determine which financial statement format is better for presenting your information.In fact, financial statements that were once presented on a combined basis, were often switched to consolidated presentation.However, this appears to be a misinterpretation, as the new accounting rules on VIEs did not abolish or change in anyway the use of combined financial presentation.Combined financial statements are generally easier to prepare than consolidated financial statements.The benefit to investors or potential investors is that they can see how each company—parent and subsidiaries, which may include corporations, LLCs, or both—is doing.