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Formal requirements for consolidated financial statements

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Do you meet the criteria for preparing consolidated financial statements? We clarify who should prepare consolidated financial statements and why it may be a good idea to prepare one, even if you do not formally need to.

Purpose of consolidated financial statements

The financial statements of a parent company and its subsidiaries are called consolidated financial statements and cover a financial year. This is regulated in the Annual Accounts Act (1995:1554). The main principle is that all parent companies covered by

the Annual Accounts Act

must make consolidated financial statements, but there are some exceptions. The consolidated financial statements are submitted to the Swedish Companies Registration Office.

The consolidated financial statements are prepared by the parent and as if the parent and the subsidiaries are an economic unit, all internal transactions between them are eliminated (excluded) from the consolidated financial statements.

The elimination is done so that the group cannot “inflate” its operations and look bigger than they really are.

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Historical reasons for consolidated financial statements

Many of today’s rules came about after the famous Kreuger crash in 1932 when part of the reason for the crash consisted of moving results around between different companies in the group.

This made the figures for individual companies look better than they actually were and no one could understand what the position really was for the group as a whole.

Criteria for requirements for consolidated financial statements

According to the formal legal requirements, consolidated accounts need to be prepared when 2 out of three points apply, for the group together and for each of the last two financial years:

  1. Turnovers over SEK 80 million
  2. Total assets greater than SEK 40 million
  3. The number of employees exceeds 50 people

Two exemptions from the requirement to prepare consolidated financial statements

  1. The parent company is also a subsidiary
  2. The subsidiaries are of no material importance

Other reasons why you need to prepare consolidated financial statements

There may be a number of other reasons why it may be a good idea to establish consolidated financial statements:

  1. As the company has a professional board
  2. Investing in a group or group company requires it
  3. The bank requires it
  4. The Group is listed
  5. Plan for the Group to become a larger group
  6. If you want to show that the Group as a whole is stronger than individual companies.

The most important reason why a smaller group prepares consolidated financial statements is for the group’s own follow-up of the business, how well all the companies as a whole are doing. Without a consolidated financial statement , you cannot obtain that information, in the form of a profit and loss statement and balance sheet.

Requirements for what the consolidated financial statements should contain:

  • Consolidated balance sheet
  • Consolidated income statement
  • Board of Directors’ report
  • Cash flow analysis
  • Additional information (notes)

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