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Section 9 – Consolidated and Separate Financial Statements
Section 9 provides guidance on the accounting requirements in the group consolidated financial statements including the exemptions from preparing consolidated financial statements. It also provides guidance on the accounting requirements for measuring investments in subsidiaries, associates and joint ventures in the individual financial statements including the disclosure requirements.
Requirement to present consolidated financial statements
Extract from FRS102: Section 9.2-9.3
9.2 Except as permitted or required by paragraph 9.3, a parent entity shall present consolidated financial statements in which it consolidates all its investments in subsidiaries in accordance with this FRS. A parent entity need only prepare consolidated accounts under the Act if it is a parent at the year end.
9.3 A parent is exempt from the requirement to prepare consolidated financial statements on any one of the following grounds:
When its immediate parent is established under the law of an EEA State (Section 400 of the Act):
(a) The parent is a wholly-owned subsidiary. Exemption is conditional on compliance with certain further conditions set out in section 400(2) of the Act.
(b) The immediate parent holds 90% or more of the allotted shares in the entity and the remaining shareholders have approved the exemption. Exemption is conditional on compliance with certain further conditions set out in section 400(2) of the Act.
(bA) The immediate parent holds more than 50% (but less than 90%) of the allotted shares in the entity, and notice requesting the preparation of consolidated financial statements has not been served on the entity by shareholders holding in aggregate at least 5% of the allotted shares in the entity. Exemption is conditional on compliance with certain further conditions set out in section 400(2) of the Act.
When its parent is not established under the law of an EEA State (Section 401 of the Act):
(c) The parent is a wholly-owned subsidiary. Exemption is conditional on compliance with certain further conditions set out in section 401(2) of the Act.
(d) The parent holds 90% or more of the allotted shares in the entity and the remaining shareholders have approved the exemption. Exemption is conditional on compliance with certain further conditions set out in section 401(2) of the Act.
(dA) The parent holds more than 50% (but less than 90%) of the allotted shares in the entity, and notice requesting the preparation of consolidated financial statements has not been served on the entity by shareholders holding in aggregate at least 5% of the allotted shares in the entity. Exemption is conditional on compliance with certain further conditions set out in section 401(2) of the Act.
Other situations
(e) The parent, and the group headed by it, qualify as small as set out in section 383 of the Act and the parent and the group are considered eligible for the exemption as determined by reference to sections 384 and 399(2A) of the Act.
(f) All of the parent’s subsidiaries are required to be excluded from consolidation by paragraph 9.9 (Section 402 of the Act).
(g) For a parent not reporting under the Act, if its statutory framework does not require the preparation of consolidated financial statements.
In sub-paragraphs (a) to (dA), the parent is not exempt if any of its transferable securities are admitted to trading on a regulated market of any EEA State within the meaning of Directive 2004/39/EC.
OmniPro comment
To summarise consolidated financial statements are not requirement in the following instances:
- A parent which is considered a small group under the Companies Act and therefore is exempt from preparation. A note in the parent company’s financial statements is required to allow readers to know that they have taken advantage of this exemption.
- An intermediate parent where the controlling company above the intermediate parent (note if the immediate parent who prepares consolidated financial statements is in the EEA it takes the exemption in Section 400 of the Companies Act 2006 (UK) and Section 299 of the Companies Act 2014, if the parent is not in the EEA, then they avail of exemption in Section 401 of the Companies Act 2006 (UK) and Section 300 of the Companies Act 2014 (in Ireland) prepares consolidated financial statements which incorporate the results of the intermediate parent and its subsidiaries to the same year end date or a date earlier than that date and they are prepared in accordance with the EC 7th Directive or an equivalent where the ultimate parent is not based in the EEA (US GAAP would usually be determined to be equivalent).
Where this exemption is claimed the notes of the parent company should state the fact that it is exempt and detail the parents name that prepares the consolidated financial statements and the country it is incorporated in.
It is also required to file the parent consolidated financial statements with Companies House / the Registration of Companies. Where a subsidiary is acquired part way through the year, the subsidiary must prepare its own consolidated financial statements in that year as the parent company consolidation would not include results for all of the financial year.
- A parent where all subsidiaries are excluded from consolidation
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