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Is there any risk to consolidating financial statements

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In this article, we'll look at what sort of company must produce a consolidated financial statement, what information must be excluded from the statement and what special implications these statements present.(Companies are required to consolidate their financial statements whenever they own a controlling interest in another company.In order to get a broad view of a company's financial situation, you must look not only at the company's financials, but also the financials of its subsidiaries.Consolidated financial statements provide a way for investors to get this wholesale view for companies such as Fed Ex and Berkshire Hathaway.The following presentations are considered part of the basic financial statements: descriptions of accounting policies, notes to financial statements, and schedules and explanatory material that are identified as being part of the basic financial statements.For purposes of this section, basic financial statements also include an individual basic financial statement, such as a balance sheet or statement of income and financial statements prepared in accordance with a comprehensive basis of accounting other than generally accepted accounting principles.

Shareholders don’t even need to know the results of these subsidiaries.

In other words, if a company is able to assert control of another company through its stake in it - regardless of the percentage of ownership - that company (called the parent company) must consolidate its financial statements with those of the subsidiary.

(To learn more about subsidiaries, see These consolidated statements provide a look at the operations of both the parent company and those of its subsidiaries; however, there is more to this than simply adding up the revenues of the parent and its subsidiaries.

Because the parent company now fully controls the subsidiary, by accounting rules, the parent company must present its subsidiary’s and its own financial operations in a consolidated manner (even though the two companies may be separate legal entities).

The parent company does so by publishing a consolidated financial statement, which combines the assets, liabilities, revenue, and expenses of the parent company as well as those of its affiliates (that is, its subsidiaries, associates, and joint ventures).