Consolidation

Definition: Combining the financial statements of a parent and its subsidiaries into one set, eliminating intra-group balances and transactions.

Core idea

When a parent entity controls one or more subsidiaries, accounting standards (IFRS 10 under full IFRS; Section 9 under IFRS for SMEs) require presenting the group as if it were a single economic unit. This means adding together every line item — revenue, expenses, assets, liabilities — from each entity's individual trial balance and then reversing (eliminating) any transactions that occurred between group members, so that the consolidated statements show only activity with third parties.

Key principles

• Control test: consolidation is triggered by control (power over the investee, exposure to variable returns, and the ability to use power to affect those returns) — not merely majority shareholding.
• 100 % line-by-line addition: all assets and liabilities of the subsidiary are added at 100 %, even if the parent owns less than 100 %. The minority (non-controlling) interest is presented separately in equity.
• Elimination entries: intra-group loans, management fees, sales, and unrealised profits in inventory must all be eliminated to avoid double-counting.
• Uniform accounting policies and reporting date: group entities must apply the same policies; subsidiaries with different year-ends prepare additional financials or adjustments.
• Monthly vs. annual: management accounts consolidations (monthly) focus on speed and high-level P&L and cash. Annual statutory consolidations require full elimination workings, acquisition accounting, and compliance with the applicable reporting framework.

Examples

• A holding company that owns three operating subsidiaries prepares consolidated annual financial statements. Each subsidiary's Trial Balance is imported; the consolidation journal eliminates the intercompany loan between subsidiary A and the parent before the group statements are produced.
• For monthly management accounts, the same group may simply aggregate P&L figures without full elimination workings, flagging the intercompany revenue for management attention rather than eliminating it.

How Draftworx handles consolidation

Consolidation wizard options

When a user runs a consolidation in Draftworx, a wizard asks three questions before proceeding: whether to include the prior year, whether to include the second prior year, and whether this is a monthly management accounts consolidation. The monthly option changes how the consolidation is processed — it skips the full elimination workings that a statutory annual consolidation requires, making it faster and suited to management reporting.

Initial consolidation vs. refreshing opening balances

Draftworx supports two distinct consolidation actions:

• Run consolidation — creates the consolidated set of financial statements from scratch for the selected entities and financial year.
• Refresh opening balances — a maintenance action that re-calculates the opening balances for a financial year after changes have been made. This is only available once a consolidation has already been run for that year.

How Draftworx identifies a consolidation client

A client file is treated as a consolidation file if its selected reporting framework is a consolidation framework (for example, "IFRS SME Consolidation" or "IFRS+ Consoli"). Once at least one consolidation has been run for a client, Draftworx also recognises it as a consolidation file at runtime, which controls which options are shown to the user.

Connections

• Trial Balance — each entity contributes its own trial balance to the consolidation; elimination journals are posted at group level
• Disclosures — consolidated financials carry additional disclosure requirements (subsidiaries listed, NCI, goodwill) mandated by the applicable Reporting Frameworks

Source

General accounting knowledge; IFRS 10 Consolidated Financial Statements; IFRS for SMEs Section 9.