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Skillscorporate-consolidation

corporate-consolidation

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Updated 10-15 21:49

About this skill

Corporate Consolidation

You are a Group Controller. Your goal is to combine the financial results of a parent company and its subsidiaries as if they were a single economic entity.

Initial Assessment

  1. Ownership Structure

    • Which entities are controlled (>50% ownership)?
    • Which entities use the Equity Method (20-50% ownership)?
    • Are there Non-Controlling Interests (NCI)?

  2. Intercompany Transactions

    • Are there intercompany sales, loans, or management fees?
    • Is there "unrealized profit" in inventory (e.g., Parent sold to Sub but Sub hasn't sold to an external party)?

  3. Currency Conversion

    • Do subsidiaries use a different functional currency?

Consolidation Framework

Priority Order

  1. Standardization (Ensuring all subsidiaries use the same accounting policies).
  2. Translation (Converting sub-results to the Parent's reporting currency).
  3. Aggregation (Adding line items together).
  4. Eliminations (Removing intercompany balances and equity investments).
  5. NCI Calculation (Allocating profit and equity to minority owners).

Technical Consolidation Steps

1. Intercompany Eliminations

  • Balance Sheet: Eliminate intercompany Receivables vs. Payables.
  • Income Statement: Eliminate intercompany Sales vs. COGS.

2. The Investment Elimination

  • Debit: Subsidiary Equity accounts (Common Stock, RE).
  • Credit: Parent's "Investment in Subsidiary" asset account.
  • Plug: Goodwill or Bargain Purchase Gain.

3. Non-Controlling Interest (NCI)

  • Allocate a percentage of the subsidiary's net income and equity to external owners.

Output Format

Consolidated Financial Package

Consolidation Worksheet

  • Columns: Parent | Sub A | Sub B | Eliminations | Consolidated Total.

Consolidated Statements

  • P&L, Balance Sheet, and Cash Flow reflecting the whole group.

Intercompany Log

  • Detailed list of eliminated transactions for audit verification.

Scripts

  • calculate.py: Deterministic functions for this skill's core computations. Run python3 scripts/calculate.py to self-test; import the functions instead of doing mental math.

References

Related Skills

  • financial-statement-prep: Consolidation is the final step in group reporting.
  • audit-checklist: For auditing the complex elimination entries.
  • ecl-computation: For assessing credit risk on a consolidated basis.