Preparing Consolidated Accounts in the United Kingdom
3E Accounting explains how to go about preparing consolidated accounts in the UK in this quick read.
If you have a company that has several subsidiaries or divisions, then you will have to look into preparing consolidated accounts in the UK. Overseas subsidiaries registered in the United Kingdom would also need to be included. This means your year-end filing is on the combined financial data of all the businesses in your group. The Companies Act 2006 (CA 2006) now requires this set of accounts to be prepared for all medium-sized companies as well.
Group Financial Statements
S399 of the CA 2006 requires the directors of all parent companies to prepare group accounts along with individual accounts. This requirement must be done if, at the end of the financial year, a company is considered as a parent company. Parent and subsidiary associations can be determined by looking at:
- Share Ownership: control is established where more than half of the shares in the subsidiary is owned by the parent company
- Equity Method: dominant control is based on the parent company’s ability to dictate the subsidiary’s financial and operational policies.
Statutory exemptions to this requirement arise in instances specified by the CA 2006. Generally, and briefly, they include, amongst others:
- The parent company itself is a subsidiary, along with other specified criteria.
- Small groups are exempted from preparing consolidated accounts, – S399 (2A0 CA 2006. Instead, they apply SI 2008/409 Small Companies and Groups (Accounts and Directors’ Report). A group is categorized as small if it meets the criteria as set out in the CA 2006.
- Any company included in the accounts of a larger group, which is or is not from the EEA (European Economic Area) – S400 CA 2006 and S401 CA 2006, respectively.
- Subsidiary undertakings that need not be included – S402 CA 2006. This may be due to the interest in the subsidiary being for subsequent resale or that its inclusion is not material to a true and fair view.
These are general provisions, and some of the regulations may be subject to changes post-Brexit. As such, it is advisable to engage specialists’ companies such as 3E Accounting to look into group accounts and exemptions.
Overall, regulations require that accounting policies throughout the group of companies should be uniform. This includes preparing all financial statements and filing within the same accounting period. Group financial statements are necessary to facilitate a single reporting entity. This will eliminate intercompany transactions, profits, and balances, making for better tax returns. It also accounts for goodwill, which can include part of the subsidiary’s investment cost, which is governed by the Financial Reporting Standard (FRS).
There are several accounting systems and software that can aid in preparing consolidated accounts in the UK. Cloud-based or Software as a Service (SaaS) offerings do get the job done, but these are usually generic. To acquire customizable and company-specific group accounts, it is always best to work with professionals. 3E Accounting has a tried and tested track record of providing business solutions that work. Contact 3E Accounting if you are looking for professional help that will always deliver the best.