Glossary

10.5 Consolidation

11 min read•august 20, 2024

Consolidation is a crucial process in financial reporting, combining the financial statements of a and its subsidiaries. It eliminates and provides a comprehensive view of a group's financial position and performance as a single economic entity.

The consolidation process involves complex accounting techniques, including , calculation, and handling non-controlling interests. It also addresses challenges like intragroup transactions, , and , ensuring accurate representation of the group's financial reality.

Consolidation process overview

  • Consolidation combines the financial statements of a parent company and its subsidiaries into a single set of financial statements, presenting them as if they were a single economic entity
  • The process eliminates intragroup transactions, balances, income, and expenses to avoid double-counting and provide a true and fair view of the group's financial position and performance
  • Consolidation is required when a parent company has control over its subsidiaries, which is generally determined by the parent's ownership of a majority of the 's voting shares

Subsidiaries and control

Voting and non-voting shares

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  • Voting shares give shareholders the right to vote on important company decisions, such as electing board members and approving mergers or acquisitions
  • Non-voting shares do not provide voting rights but may offer other benefits, such as higher dividend payments or preferential treatment in the event of liquidation
  • Control is typically determined by the ownership of a majority of voting shares, although other factors, such as contractual agreements or the ability to appoint key management personnel, can also establish control

Direct vs indirect control

  • occurs when a parent company directly owns a majority of the voting shares in a subsidiary
  • arises when a parent company controls a subsidiary through its ownership of another entity that, in turn, owns a majority of the subsidiary's voting shares
  • Consolidation is required when a parent company has either direct or indirect control over a subsidiary, as both scenarios give the parent the ability to direct the subsidiary's financial and operating policies

Acquisition method

Fair value adjustments

  • When a parent company acquires a subsidiary, the subsidiary's assets and liabilities are measured at their fair values on the acquisition date
  • Fair value adjustments are made to align the subsidiary's carrying amounts with their fair values, ensuring that the consolidated financial statements reflect the true value of the acquired assets and liabilities
  • Examples of fair value adjustments include revaluing property, plant, and equipment, intangible assets (patents, trademarks), and inventory to their current market values

Goodwill calculation

  • Goodwill arises when the purchase price paid for a subsidiary exceeds the fair value of its identifiable net assets (assets minus liabilities)
  • The goodwill calculation involves subtracting the fair value of the subsidiary's net assets from the purchase price, with the difference representing the value of unidentifiable assets, such as brand reputation, customer loyalty, and synergies
  • Goodwill is recognized as an intangible asset on the and is subject to annual impairment tests to ensure its carrying amount remains appropriate

Non-controlling interest

Measurement at acquisition

  • (NCI) represents the equity ownership in a subsidiary that is not attributable to the parent company
  • At the acquisition date, NCI can be measured using either the proportionate share method or the fair value method
    • The proportionate share method values NCI at its proportionate share of the subsidiary's identifiable net assets
    • The fair value method measures NCI at its fair value, including a proportionate share of goodwill
  • The choice of measurement method affects the amount of goodwill recognized and the subsequent measurement of NCI in the consolidated financial statements

Income statement presentation

  • In the , the subsidiary's profit or loss is split between the parent company's shareholders and the NCI
  • The portion of the subsidiary's profit or loss attributable to the NCI is separately disclosed as a deduction from the group's profit or loss
  • This presentation provides transparency about the allocation of the subsidiary's earnings between the parent company's shareholders and the NCI, reflecting their respective ownership interests

Intragroup transactions

Downstream vs upstream sales

  • occur when a parent company sells goods or services to its subsidiary
  • occur when a subsidiary sells goods or services to its parent company
  • In both cases, the intragroup transactions must be eliminated from the consolidated financial statements to avoid overstating revenues, expenses, assets, and liabilities
  • The elimination process ensures that only transactions with external parties are reflected in the consolidated financial statements

Unrealized profit eliminations

  • Unrealized profits arise when intragroup transactions involve the sale of assets that remain within the group at the end of the reporting period
  • These unrealized profits must be eliminated from the consolidated financial statements to avoid overstating the group's assets and profits
  • The elimination is typically achieved by reducing the carrying amount of the asset (inventory, property, plant, and equipment) and adjusting the cost of sales or depreciation expense accordingly
  • The elimination ensures that the consolidated financial statements only reflect profits earned from transactions with external parties

Intercompany debt

Loans and interest

  • Intercompany loans are borrowings between a parent company and its subsidiaries or between subsidiaries within the same group
  • These loans and the associated interest income and expense must be eliminated from the consolidated financial statements to avoid overstating assets, liabilities, income, and expenses
  • The elimination process involves canceling out the intercompany loan balances and the related interest income and expense, ensuring that only transactions with external lenders are reflected in the consolidated financial statements

Bonds and discounts/premiums

  • When a parent company or subsidiary issues bonds that are purchased by another entity within the group, the bonds and any associated discounts or premiums must be eliminated from the consolidated financial statements
  • Discounts arise when bonds are issued at a price below their face value, while premiums occur when bonds are issued at a price above their face value
  • The elimination process involves canceling out the intercompany bond balances and adjusting the related interest income and expense, as well as amortizing any discounts or premiums over the life of the bonds
  • This ensures that the consolidated financial statements only reflect the group's external borrowings and the associated costs

Changes in ownership interest

Acquisitions in stages

  • An acquisition in stages, also known as a step acquisition, occurs when a parent company obtains control of a subsidiary through multiple transactions over time
  • Each transaction is accounted for separately, with the parent company measuring its previously held equity interest in the subsidiary at fair value on the date control is obtained
  • The difference between the fair value and the carrying amount of the previously held equity interest is recognized as a gain or loss in the parent company's income statement
  • Goodwill is calculated based on the aggregate purchase price across all stages and the fair value of the subsidiary's net assets at the date control is obtained

Disposals and loss of control

  • A disposal occurs when a parent company sells a portion or all of its ownership interest in a subsidiary
  • If the disposal results in a loss of control, the parent company derecognizes the subsidiary's assets and liabilities from the consolidated financial statements and recognizes any gain or loss on the sale
  • The gain or loss is calculated as the difference between the proceeds received and the carrying amount of the subsidiary's net assets, including any attributable goodwill
  • If the parent company retains a non-controlling interest in the former subsidiary after the disposal, this interest is measured at fair value on the date control is lost and accounted for as an investment in an associate or financial asset, depending on the level of influence retained

Complex group structures

Vertical groups

  • A vertical group structure occurs when a parent company controls a subsidiary, which in turn controls another subsidiary, creating a chain of ownership
  • Consolidation in a vertical group involves combining the financial statements of the parent company and all its direct and indirect subsidiaries
  • The process starts with the lowest-level subsidiary and works upward, with each level of the group eliminating intragroup transactions, balances, income, and expenses
  • The resulting consolidated financial statements present the financial position and performance of the entire vertical group as a single economic entity

Horizontal groups

  • A horizontal group structure arises when a parent company controls multiple subsidiaries that operate independently of each other
  • Consolidation in a horizontal group involves combining the financial statements of the parent company and its direct subsidiaries
  • The process eliminates intragroup transactions, balances, income, and expenses between the parent company and each subsidiary, as well as between the subsidiaries themselves
  • The resulting consolidated financial statements present the financial position and performance of the parent company and its subsidiaries as a single economic entity, while preserving the distinct operations of each subsidiary

Consolidated financial statements

Consolidated balance sheet

  • The consolidated balance sheet presents the combined assets, liabilities, and equity of the parent company and its subsidiaries as if they were a single entity
  • The process involves aggregating the individual balance sheet items of the parent company and its subsidiaries, eliminating intragroup balances, and making fair value adjustments as necessary
  • Goodwill and non-controlling interests are also recognized in the consolidated balance sheet, reflecting the parent company's ownership interest in its subsidiaries
  • The resulting consolidated balance sheet provides a comprehensive view of the group's financial position, including its total assets, liabilities, and equity

Consolidated income statement

  • The consolidated income statement presents the combined revenues, expenses, and profit or loss of the parent company and its subsidiaries as if they were a single entity
  • The process involves aggregating the individual income statement items of the parent company and its subsidiaries, eliminating intragroup transactions and unrealized profits, and making fair value adjustments as necessary
  • The subsidiary's profit or loss is split between the parent company's shareholders and the non-controlling interest, with the NCI's share separately disclosed
  • The resulting consolidated income statement provides a comprehensive view of the group's financial performance, including its total revenues, expenses, and profit or loss

Consolidated cash flow statement

  • The presents the combined cash inflows and outflows of the parent company and its subsidiaries as if they were a single entity
  • The process involves aggregating the individual cash flow statement items of the parent company and its subsidiaries, eliminating intragroup cash flows, and making fair value adjustments as necessary
  • The consolidated cash flow statement is typically prepared using the indirect method, starting with the group's profit or loss and adjusting for non-cash items, changes in working capital, and investing and financing activities
  • The resulting consolidated cash flow statement provides a comprehensive view of the group's cash generation and utilization, including its operating, investing, and financing cash flows

Foreign currency translation

Functional vs presentation currency

  • The is the primary currency of the economic environment in which an entity operates and generates cash flows
  • The is the currency in which the consolidated financial statements are presented, often the parent company's functional currency
  • Subsidiaries may have different functional currencies than the parent company, necessitating the translation of their financial statements into the presentation currency for consolidation purposes
  • The translation process ensures that the consolidated financial statements are presented in a single, consistent currency, facilitating comparability and analysis

Translation of foreign subsidiaries

  • The financial statements of foreign subsidiaries are translated into the presentation currency using the current rate method
  • Assets and liabilities are translated at the exchange rate prevailing on the balance sheet date, while income and expenses are translated at the average exchange rate for the period
  • Equity items, such as share capital and retained earnings, are translated at historical exchange rates, which are the rates prevailing on the dates of the original transactions
  • The resulting translation differences are recognized in other comprehensive income and accumulated in a separate component of equity, known as the foreign currency translation reserve
  • This translation process allows the consolidated financial statements to reflect the group's financial position and performance in the presentation currency while preserving the underlying transactions in the subsidiaries' functional currencies

Associates and joint ventures

Equity method of accounting

  • The equity method is used to account for investments in associates and joint ventures, where the investor has significant influence but not control over the investee
  • Under the equity method, the investment is initially recognized at cost and subsequently adjusted for the investor's share of the investee's post-acquisition profit or loss and other comprehensive income
  • The investor's share of the investee's profit or loss is recognized in the investor's income statement, while its share of other comprehensive income is recognized in the investor's other comprehensive income
  • Dividends received from the investee reduce the carrying amount of the investment
  • The equity method provides a more accurate representation of the investor's interest in the investee's financial performance and position compared to the cost method

Proportionate consolidation

  • is an alternative method for accounting for investments in joint ventures, where the investor and the other venturers have joint control over the arrangement
  • Under proportionate consolidation, the investor recognizes its proportionate share of the joint venture's assets, liabilities, income, and expenses in its own financial statements
  • The investor combines its share of each line item in the joint venture's financial statements with its own corresponding line items, effectively treating the joint venture as if it were a partially-owned subsidiary
  • Proportionate consolidation provides a more granular view of the investor's interest in the joint venture's operations compared to the equity method
  • However, the use of proportionate consolidation is generally less common than the equity method and is not permitted under International Financial Reporting Standards (IFRS)
  • are entities or individuals that are related to the reporting entity, such as subsidiaries, associates, joint ventures, key management personnel, and their close family members
  • Related parties also include entities that are under common control with the reporting entity or have significant influence over it
  • Transactions between related parties may not be conducted at arm's length and could potentially be influenced by the relationship between the parties
  • Identifying and disclosing related party relationships and transactions is essential for providing transparency and helping users of financial statements assess the potential impact of these relationships on the entity's financial position and performance

Disclosure requirements in notes

  • Entities are required to disclose information about related party relationships and transactions in the notes to their financial statements
  • The disclosures should include the nature of the related party relationship, the types of transactions involved, and the amounts of the transactions
  • For significant related party transactions, entities should disclose the terms and conditions of the transactions, including whether they were conducted at arm's length
  • Entities should also disclose any outstanding balances with related parties at the end of the reporting period, including any provisions for doubtful debts or bad debt expense related to these balances
  • Key management personnel compensation, including salaries, bonuses, and other benefits, should be disclosed in aggregate and by category
  • These disclosures help users of financial statements understand the extent and potential impact of related party relationships and transactions on the entity's financial position and performance

Key Terms to Review (40)

Acquisition method: The acquisition method is an accounting approach used to account for business combinations, where one company acquires another. This method requires the acquirer to recognize the fair value of the acquired assets and liabilities at the acquisition date, which is essential for determining goodwill and proper consolidation of financial statements. This approach ensures that the financial position of both entities reflects the true economic reality of the combination.
Acquisitions in stages: Acquisitions in stages refer to the process where a company gradually acquires control over another company by purchasing shares in multiple transactions over time, rather than making a single large purchase. This method allows the acquiring company to manage its investment risk and align acquisition costs with cash flow availability. As ownership increases, the acquiring company can begin consolidating the financial results of the acquired entity into its own financial statements.
Asc 810: ASC 810 is the Accounting Standards Codification topic that provides guidance on consolidations, specifically focusing on how companies should consolidate their financial statements when they have control over other entities. It outlines the principles for determining when an entity should be consolidated and the methods for reporting the financial results of subsidiaries, helping to ensure that the financial statements present a clear and comprehensive view of the controlling entity's financial position.
Bonds and Discounts/Premiums: Bonds are debt securities issued by entities to raise capital, where the issuer promises to pay back the principal amount along with interest over a specified period. Discounts and premiums refer to the differences between the bond's face value and its market price; a bond is sold at a discount when its market price is below face value, while it is sold at a premium when above face value. Understanding these concepts is essential for assessing the financial health of entities and making informed investment decisions.
Changes in ownership interest: Changes in ownership interest refer to the alterations in the percentage of ownership a parent company has in its subsidiaries. This can happen through various transactions like buying or selling shares, and it impacts how consolidated financial statements are prepared and presented. Understanding these changes is crucial because they affect how the assets, liabilities, and overall financial position of the parent company are represented in financial reporting.
Consolidated balance sheet: A consolidated balance sheet is a financial statement that combines the assets, liabilities, and equity of a parent company and its subsidiaries into one comprehensive report. This document reflects the overall financial position of a corporate group as if it were a single entity, ensuring that the financial health of the entire organization is presented clearly. It helps stakeholders understand the total resources and obligations of the group, eliminating any inter-company transactions or balances that could skew the true financial picture.
Consolidated Cash Flow Statement: A consolidated cash flow statement is a financial document that presents the cash inflows and outflows of a parent company and its subsidiaries as a single entity. This statement provides insights into the overall cash management and liquidity position of the entire corporate group, reflecting the combined operational, investing, and financing activities. Understanding this statement is crucial for analyzing a company's financial health and performance across multiple business units.
Consolidated Income Statement: A consolidated income statement presents the combined revenues, expenses, and profits of a parent company and its subsidiaries as a single entity. This statement provides a comprehensive overview of the financial performance of the entire group, ensuring that stakeholders can assess the overall profitability and operational efficiency. The consolidation process eliminates intercompany transactions, offering a clearer picture of the economic realities faced by the consolidated group.
Consolidation adjustments: Consolidation adjustments are necessary accounting entries made during the preparation of consolidated financial statements to eliminate the effects of intercompany transactions and balances. These adjustments ensure that the consolidated financial statements present a true and fair view of the financial position and performance of a group of companies as if they were a single entity. This process involves removing any duplicated revenues, expenses, assets, or liabilities that arise from transactions between the parent company and its subsidiaries.
Direct control: Direct control refers to the authority and influence exerted by a parent company over its subsidiaries through ownership and management decisions. This concept highlights how the parent company can make strategic choices and enforce policies that align with its objectives, ensuring that the subsidiary operates in a manner that meets corporate standards and goals.
Disposals and Loss of Control: Disposals and loss of control refer to the process of selling, transferring, or otherwise relinquishing ownership of a subsidiary or significant assets, which results in the parent company losing its control over that entity. This concept is crucial in consolidation as it determines how to account for financial relationships, the impacts on financial statements, and whether to include the disposed entity in future consolidated reports.
Downstream sales: Downstream sales refer to transactions that occur when a subsidiary sells goods or services to its parent company or to another subsidiary within the same corporate group. This concept is crucial for understanding how intercompany transactions affect the consolidated financial statements, particularly in terms of revenue recognition and profit measurement.
Elimination entries: Elimination entries are accounting adjustments made during the consolidation process to eliminate the effects of intercompany transactions between a parent company and its subsidiaries. These entries ensure that the consolidated financial statements present a true and fair view of the financial position and performance of the group as a whole, without double-counting revenues, expenses, or assets resulting from transactions that occurred between entities within the group.
Equity method of accounting: The equity method of accounting is a financial reporting approach used for investments where the investor has significant influence over the investee, typically represented by owning between 20% and 50% of the voting stock. This method recognizes the investor's share of the investee's profits or losses, impacting the investor's income statement and balance sheet, reflecting both investing activities and consolidation practices in financial statements.
Fair Value Adjustments: Fair value adjustments refer to the changes in the carrying amount of an asset or liability that are recognized when financial statements are prepared, reflecting the asset's or liability's current market value rather than its historical cost. These adjustments play a crucial role in the consolidation process, particularly when an acquiring company must recognize the fair value of acquired assets and liabilities from a subsidiary, ensuring that financial statements accurately represent the economic reality of ownership.
Full Consolidation: Full consolidation is an accounting method used to combine the financial statements of a parent company with its subsidiaries, treating them as a single entity. This approach ensures that all assets, liabilities, revenues, and expenses of the subsidiaries are included in the parent’s financial statements, reflecting the total economic activity and financial position of the consolidated group. It is essential for presenting a clear view of the financial health of the corporate family and ensuring compliance with accounting standards.
Functional Currency: Functional currency is the primary currency used by an entity to conduct its business operations and prepare its financial statements. It reflects the economic environment in which the entity primarily operates, impacting how transactions are measured and reported in financial statements. Understanding functional currency is crucial for accurate consolidation of financial results, especially when dealing with subsidiaries operating in different currencies.
Goodwill: Goodwill is an intangible asset that represents the excess value of a business beyond its identifiable net assets at the time of acquisition. It often reflects factors such as brand reputation, customer relationships, and employee relations that contribute to future earnings. Goodwill is important in understanding types of intangible assets and plays a role in amortization, impairment assessments, and consolidation processes.
Horizontal groups: Horizontal groups refer to a method of organizing and presenting financial information across different entities or subsidiaries that share a similar level of operational activities. This approach enables stakeholders to make comparisons and analyze the performance and financial position of these entities in relation to one another. By using horizontal groups, companies can enhance clarity and transparency in their financial reporting, especially during consolidation processes.
IFRS 10: IFRS 10 is an International Financial Reporting Standard that establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This standard provides a framework to determine whether an investor controls an investee and therefore should consolidate that investee’s financial statements into their own, focusing on the concept of control rather than just ownership.
Income statement presentation: Income statement presentation refers to the specific way financial performance is reported, focusing on the revenues, expenses, and ultimately the net income or loss of a company over a specified period. This presentation is crucial for stakeholders as it summarizes how well the company generates profit and controls costs, thereby influencing investment and operational decisions.
Indirect control: Indirect control refers to a method of governance or influence where an entity exerts power over another without direct management or ownership. This often involves using intermediaries or relying on existing structures to achieve desired outcomes. In the context of consolidation, indirect control is significant as it determines how entities can report their financial positions and results based on their influence rather than outright ownership.
Intercompany Debt: Intercompany debt refers to the financial obligations that exist between two or more subsidiaries of a parent company. These debts arise when one subsidiary borrows funds from another, and they play a crucial role in the overall financial structure and consolidation process of corporate groups, impacting financial reporting and resource allocation within the organization.
Intercompany transactions: Intercompany transactions are financial dealings that occur between two or more entities within the same corporate group. These transactions can include sales, purchases, and loans, and they are important for accurate financial reporting because they need to be eliminated during consolidation to prevent double counting of revenues and expenses.
Intragroup transactions: Intragroup transactions refer to the financial exchanges that occur between entities within the same consolidated group. These transactions are crucial for accurate financial reporting, as they can affect the overall financial results of the group when preparing consolidated financial statements. Eliminating these transactions is necessary to avoid overstating revenues and expenses, ensuring that the consolidated statements reflect only external transactions with third parties.
Loans and Interest: Loans are borrowed amounts of money that individuals or entities agree to repay over time, usually with interest. Interest is the cost of borrowing money, typically expressed as a percentage of the loan amount, which lenders charge to compensate for the risk and opportunity cost of providing the loan. Understanding loans and interest is crucial in financial reporting, as they impact both the balance sheet and income statement of borrowers and lenders.
Majority interest: Majority interest refers to the ownership of more than 50% of a company's voting stock, which grants the majority shareholder significant control over corporate decisions and direction. This level of ownership is crucial in determining how financial statements are consolidated, as it signifies that the majority shareholder can influence or dictate the operational and financial policies of the entity.
Measurement at acquisition: Measurement at acquisition refers to the initial recognition of an asset or liability at its fair value on the date it is acquired. This concept is crucial because it establishes the baseline for subsequent measurements and helps determine the carrying amount of the asset or liability in financial statements. The accurate measurement at acquisition is essential for ensuring that financial statements reflect the true economic condition of a company after consolidation.
Minority interest: Minority interest refers to the ownership stake in a subsidiary company that is not controlled by the parent company, meaning the parent does not own more than 50% of the subsidiary's voting stock. This ownership can represent significant financial interests in consolidated financial statements, where minority interest is recognized as a non-controlling interest and reported separately to reflect the portion of equity not attributable to the parent company. Understanding minority interest is crucial for accurately assessing the financial position of a parent company and its subsidiaries.
Non-controlling interest: Non-controlling interest refers to the portion of equity ownership in a subsidiary that is not attributable to the parent company. This interest represents the shareholders of the subsidiary who do not hold a controlling stake, typically defined as owning less than 50% of the voting shares. Non-controlling interests are significant in consolidated financial statements as they reflect the portion of a subsidiary's net assets and earnings that belong to other shareholders.
Parent company: A parent company is a corporation that owns enough voting stock in another company, known as a subsidiary, to control its policies and oversee its management. This relationship allows the parent company to consolidate financial results and exert significant influence over the subsidiary's operations, thereby creating an integrated business structure.
Presentation currency: Presentation currency is the currency in which an entity presents its financial statements. This term is crucial for multinational companies as it ensures clarity and consistency when consolidating financial data from various subsidiaries operating in different currencies.
Proportional Consolidation: Proportional consolidation is an accounting method used to report the financial results of jointly controlled entities. Under this method, a company recognizes its share of the assets, liabilities, revenues, and expenses of the joint venture in proportion to its ownership interest. This approach provides a clearer view of the company's financial position and performance by reflecting its actual involvement in the jointly controlled entity.
Proportionate consolidation: Proportionate consolidation is an accounting method used to report the financial results of jointly controlled entities by including the investor's share of the assets, liabilities, revenues, and expenses of the joint venture in its financial statements. This method allows an investor to reflect its interest in the joint venture more accurately by proportionately consolidating its results rather than reporting them as a single line item in the financial statements.
Related parties: Related parties are individuals or entities that have a relationship with a reporting entity that may affect the transactions and agreements made between them. This includes relationships such as family ties, ownership interests, or significant influence, which can lead to transactions that may not be conducted at arm's length, potentially affecting the financial statements and decision-making processes.
Subsidiary: A subsidiary is a company that is controlled by another company, known as the parent company, through majority ownership of its voting stock. This relationship allows the parent company to consolidate financial results and report them as part of its overall financial statements. Subsidiaries operate independently but are ultimately under the control of the parent company, making them significant in the context of corporate structures and consolidation processes.
Translation of foreign subsidiaries: Translation of foreign subsidiaries refers to the process of converting the financial statements of a company's foreign subsidiaries from their local currencies into the parent company's reporting currency. This process is essential for accurately consolidating financial statements and understanding the overall financial health of multinational corporations, especially when these subsidiaries operate in different countries with varying currencies and exchange rates.
Unrealized profit eliminations: Unrealized profit eliminations refer to the process of removing profits that have not yet been realized through actual sales when preparing consolidated financial statements. This adjustment is crucial to prevent overstatement of profits in the financial reports of a parent company and its subsidiaries, ensuring that only profits from transactions with external parties are reflected. These eliminations help maintain the integrity of the consolidated financial statements, aligning them with the economic reality of the entities involved.
Upstream sales: Upstream sales refer to transactions where a subsidiary sells goods or services to its parent company. These sales are significant in the context of consolidation because they can affect the financial statements of both entities and need to be properly accounted for to avoid inflating revenue and profit figures during consolidation.
Vertical Groups: Vertical groups refer to the financial reporting structure used in consolidation that organizes financial data hierarchically, typically showing the parent company at the top and its subsidiaries listed below. This format helps to provide a clear overview of the financial position and performance of the entire corporate group, facilitating the analysis of intercompany transactions and the overall financial health of the conglomerate.
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