Consolidated Financial Statements

A consolidated financial statements is an annual financial statements or interim financial statements of the Group . By presenting the asset, financial and earnings position of a group, it is intended to provide information and decision-making for members of the group as well as external addressees. To prepare the consolidated financial statements, the individual financial statements of the group companies are first standardized and summed up to form a consolidated financial statement. This is then adjusted to remove the links and economic relationships between the group companies through consolidation measures. According to the uniform fiction, which is also called the uniform principle, consolidated financial statements are to be presented as if the group were a single company.

In a group, the parent company can exercise a controlling influence on the subsidiaries belonging to the group . As a result, there are often business relationships between group companies that independent companies would normally not enter into. Your business activities are usually geared towards the group and can be better assessed in the context of the group. Therefore, the separate financial statements of the parent company and the subsidiaries are often less meaningful than the separate financial statements of independent companies. The net assets, financial position and results of operations of a group can be better represented by consolidated financial statements. This can also help to better understand the asset, financial and earnings position of the individual group companies.

National laws, stock exchange regulations, other accounting regulations or contractual agreements determine whether a parent company has to prepare consolidated financial statements . Which companies are to be included in a consolidated financial statement (scope of consolidation) is regulated by the applicable accounting regulations.

The scope of the consolidated financial statements varies depending on the accounting system. Often write the accounting rules requires that the consolidated financial statements, a consolidated balance sheet , an income statement or statement of comprehensive income , a Notes , an equity statement , also called equity, and cash flow statement should contain. Also, a segment reporting may be part of consolidated financial statements (cf.. IFRS 8 ). Consolidated financial statements in Germany and Austria must be supplemented by a group management report .

In Germany, the information function of the consolidated financial statements is in the foreground. He is de jure neither the calculation of dividend even as a basis for income taxation (an exception to the latter is the so-called. Interest limit in § 4h EStG).

Group accounting

Group accounting is the term used to describe all actions and organizational measures for the preparation and disclosure of consolidated financial statements in accordance with generally recognized accounting regulations.

Since the middle of the 20th century, the number of companies merging into one group has increased steadily. The corporations have steadily become more international, both in terms of the companies they belong to and in terms of the markets in which they operate. Following this development, more and more companies were legally obliged to prepare consolidated financial statements. With the obligation or the option to prepare consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS), many countries want to make the consolidated financial statements of the companies in their country internationally comparable.

In Germany, with the Stock Corporation Act of 1965, only stock corporations were initially obliged to prepare group accounts. With the Publicity Act of 1969, the group accounting requirement was extended to large groups with parent companies of other legal forms. In the course of the implementation of the 7th EC directive for the standardization of company law from 1983, the national regulations for group accounting in the European Union (EU) were brought closer together. In Germany, the guideline was implemented by the Accounting Directive Act of 1985, which introduced the essential provisions for group accounting into the Commercial Code . With the Accounting Directive Act, the world closure principle was also introduced. In Austria, the group accounting obligation was first introduced by the Accounting Act of 1990, which came into force on January 1, 1994. From 1998 to 2004 the German legislator allowed listed parent companies to prepare consolidated financial statements in accordance with international accounting regulations, B. according to the IFRS or US-GAAP , instead of a consolidated financial statement according to the German commercial law. Through EU regulation 1606/2002, capital market-oriented EU companies were obliged to prepare consolidated financial statements in accordance with IFRS for fiscal years beginning after December 31, 2004, which were accepted by the EU through an endorsement process. Germany and Austria have given all other parent companies the option to prepare consolidated financial statements either in accordance with IFRS, the Commercial Code or the Corporate Code.

Duty to prepare consolidated financial statements

Companies are obliged to prepare consolidated financial statements by national laws, stock exchange regulations, other accounting regulations or contractual agreements (group accounting obligation). In Germany, the Commercial Code (HGB) and the Publicity Act (PublG) regulate group accounting. This also applies to companies that, according to the EU regulation, have to prepare their consolidated financial statements in accordance with IFRS. In Austria obligated u. a. the company code of companies for the preparation of consolidated financial statements. Companies that are listed on the US stock exchanges are required by the US capital market regulator , United States Securities and Exchange Commission (SEC), in Regulation SX to prepare consolidated financial statements in accordance with US GAAP or IFRS.

According to German and Austrian law, parent companies are generally obliged to prepare consolidated financial statements if they control a subsidiary that must be included in consolidated financial statements. This means that there is only a group accounting obligation for subordinate groups . Equal groups are not obliged to prepare consolidated financial statements at the highest group level. In Germany, companies of any legal form under private law are required to submit group accounts if they meet certain criteria. Partnerships and sole proprietorships that have no or only one asset management business without group management are, however, in accordance with Section 11 (5) PublG is not obliged to prepare consolidated financial statements.

A company that is generally required to prepare consolidated financial statements can, however, be exempted from the group accounting requirement if it is included in consolidated financial statements that meet certain criteria. Furthermore, a parent company is exempt from the group accounting requirement if the group at whose head it is below certain size criteria.

Basic group accounting obligation

A parent company that directly or indirectly controls at least one subsidiary is generally required to submit consolidated accounts. In accordance with most accounting standards, for example US GAAP and IFRS, the parent-subsidiary relationship in Germany and Austria is determined according to the control concept. In Austria it must also be checked whether there is a mother-daughter relationship according to the concept of uniform management.

According to the control concept, there is a mother-daughter relationship if at least one criterion from a list of criteria is met. In Germany, according to Section 290 (2) of the German Commercial Code (HGB) a parent-subsidiary relationship if a parent company

in another company the majority of the shareholders' voting rights are entitled,

another company has the right to appoint or dismiss the majority of the members of the administrative, management or supervisory body determining the financial and business policy, and it is at the same time a shareholder,

has the right to determine the financial and business policy on the basis of a domination agreement concluded with another company or on the basis of a provision in the articles of association of the other company, or

if, from an economic point of view, it bears the majority of the risks and opportunities of a company that serves to achieve a narrowly limited and precisely defined goal of the parent company ( special purpose vehicle ). In addition to companies, special purpose entities can also be other legal entities under private law or certain dependent special assets under private law.

When examining the above criteria, not only the rights of the parent company, but also those of its subsidiaries and the rights of persons who act on behalf of these companies are taken into account.

In Austria, Section 244 (2) of the Austrian Commercial Code (UGB) lays down criteria for establishing a parent-subsidiary relationship according to the control concept, which are similar to the first three of the above criteria.

According to the concept of uniform management, consolidated financial statements must be drawn up if the parent company holds a stake in a subsidiary to the extent of Section 228 UGB and both companies are under uniform management. This is the case when essential functions, such as business and financial policy, depend on the will of the parent company.

There is no group accounting obligation if the only subsidiary does not need to be included in the consolidated financial statements due to inclusion options. According to Section 296 of the German Commercial Code, this is essentially the case if:

the subsidiary is of minor importance for the presentation of the Group's asset, financial and earnings position,
significant and lasting restrictions affect the exercise of the parent company's rights with respect to the assets or management of that company,
the information required for the preparation of the consolidated financial statements cannot be obtained without disproportionately high costs or delays or
the shares of the subsidiary are held solely for the purpose of reselling them.

According to Section 249 of the Austrian Commercial Code (UGB), you can only choose to be included if the first three criteria are met.

Exemption through other consolidated financial statements

A parent company is according to Section 315e of the German Commercial Code ( HGB) is exempt from preparing consolidated financial statements in accordance with German commercial law if it prepares consolidated financial statements in accordance with IFRS in conjunction with supplementary commercial law provisions. Furthermore, according to Section 291 or Section 292 of the German Commercial Code (HGB) is exempt if it is included as a subsidiary in consolidated financial statements that must meet certain criteria, and if it provides corresponding information about the exemption in the notes to its own individual financial statements.

Capital market-oriented companies, i.e. those whose securities are admitted to an organized market or who have applied for admission, cannot be exempted from the group accounting obligation by means of the consolidated financial statements of their parent company.

Size-dependent exemption from group accounting requirements

In Germany and Austria, a parent company does not need to prepare consolidated financial statements if the group falls below the thresholds of Section 293 of the German Commercial Code or Section 246 of the Austrian Commercial Code (UGB) for two of the three key figures: total assets , sales and average number of employees on the reporting date of its annual financial statements and on the previous reporting date.

Non-corporations, e.g. B. Sole proprietorships , cooperatives and partnerships with a partner with unlimited liability are only required to prepare consolidated financial statements in Germany if at least two of the three thresholds of Section 11 PublG have been exceeded for three consecutive consolidated financial statements .

For corporations and partnerships without partners with unlimited liability, the threshold values depend on how the size criteria are determined. For this purpose, according to the gross method, the individual balance sheets of the group companies are to be added up without consolidation, whereas with the net method the values are to be taken from a pro forma consolidated financial statement.

The following table shows the different threshold values:

law	method	Total assets	Sales	Ø number of employees
HGB (Germany)	Gross method	EUR 24,000,000	EUR 48,000,000	250
HGB (Germany)	Net method	EUR 20,000,000	EUR 40,000,000	250
UGB (Austria)	Gross method	EUR 24,000,000	EUR 48,000,000	250
UGB (Austria)	Net method	EUR 20,000,000	EUR 40,000,000	250
PublG (Germany)	Net method	EUR 65,000,000	130,000,000 EUR	5,000

The size exemptions do not apply to capital market-oriented companies, i.e. those whose securities are admitted to an organized market or who have applied for admission. Parent companies based in Germany that are credit or financial services institutes or insurance companies must, in accordance with § 340i and § 341i HGB also prepare consolidated financial statements if your group falls below the size criteria.

Scope of consolidation

The group of companies fully included in the consolidated financial statements is called the scope of consolidation in the narrower sense . The parent company and all subsidiaries are to be included in the consolidated financial statements regardless of the country of their registered office (global closing principle), unless an inclusion option is exercised or an inclusion prohibition applies. If the group companies lose control of a subsidiary, it is no longer to be included in the consolidated financial statements. When a company is a subsidiary, the respective accounting systems regulate differently.

For consolidated financial statements that are prepared in accordance with German or Austrian accounting law, the same definition of the subsidiary applies to the determination of the scope of consolidation that is used when determining the group accounting requirement. In these accounting systems, companies have in some cases an option to include a company in the consolidated financial statements. The right to choose is identical to the right to choose when determining the group accounting requirement.

According to IFRS, a subsidiary is a company that is controlled by a parent company. According to IAS 27, this is the case if the parent company, either directly or through other subsidiaries, holds more than half of the voting rights in that company. If this is not the case, it can also exercise control in accordance with IAS 27 if it has the opportunity

to dispose of more than half of the voting rights by virtue of an agreement concluded with other shareholders,
to determine the company's financial and business policy in accordance with a company's articles of association or an agreement,
to appoint or dismiss the majority of the members of the management and / or supervisory bodies, whereby the power of disposal over the other company lies with these bodies or
to determine the majority of the votes at meetings of the management and / or supervisory bodies or an equivalent management body, whereby the power of disposal over the other company lies with these bodies.

When calculating the majority of voting rights, potential voting rights that the parent company could have acquired on the reporting date based on certain financial instruments , for example stock options , are also included . Subsidiaries that are only immaterial for the consolidated financial statements do not need to be included in the consolidated financial statements. The IFRS do not recognize any other inclusion options or prohibitions.

IAS 27 and SIC 12 also describe other ways in which a parent company can control a subsidiary. Whether group companies control a special purpose vehicle has to be decided on the basis of an economic assessment of the relationship between the group and the special purpose vehicle.

With the adoption of IFRS 10, the IASB established new criteria for defining the scope of consolidation. According to this, a company controls a subsidiary if it does

receives fluctuating returns or has a right to them and
can influence these returns due to its power over the subsidiary.

When determining whether there is control within the meaning of IFRS 10, the entire business relationship between the group and the subsidiary must be analyzed. IFRS 10 replaces SIC 12 and essential parts of IAS 27. It is mandatory for fiscal years beginning on or after January 1, 2013 to apply. However, it can also be used voluntarily beforehand.

Which companies are included in the consolidated financial statements has a decisive influence on the statement made in the consolidated financial statements. For this reason, all accounting systems require the users of the financial statements to name the companies included (for example Section 313 (2) HGB), to explain the change in the scope of consolidation compared to the previous year by providing additional information and to constantly exercise the option of inclusion.

The subsidiaries of the scope of consolidation in the narrower sense are controlled directly or indirectly by the parent company. That is why they are included in the consolidated financial statements with all assets and debts through full consolidation. Joint ventures that manage group companies with one or more companies that do not belong to the group, and associated companies over which group companies exercise significant influence, are less tied to the parent company. However, since their connection to the parent company is significant, they are therefore included in the scope of consolidation in the broader sense in German and Austrian accounting law . In the consolidated financial statements, they are given special consideration through proportionate consolidation or through accounting using the equity method . Subsidiaries that are not included in the consolidated financial statements due to inclusion options are to be included in the consolidated financial statements using the equity method if the requirements are met. Connections to companies with lower intensity, for example investments without significant influence, are accounted for in the consolidated financial statements in the same way as the individual financial statements.

Standardization of the financial statements of the group companies

Consolidated financial statements are prepared on the basis of the individual financial statements of the individual group companies. These should, if possible, be prepared according to comparable principles so that the consolidated financial statements depict the group as if it were a single company. Most accounting systems therefore require that

the individual financial statements are prepared according to the same accounting standards (e.g. according to IFRS),
Similar business transactions are accounted for and valued in the individual financial statements using uniform Group methods,
the individual financial statements are prepared in the currency of the consolidated financial statements,
the structure of the individual financial statements is based on the group-wide scheme and
the individual financial statements are prepared on the same balance sheet date.

Due to national legal requirements, subsidiaries often have to prepare separate financial statements that do not meet the requirements of the consolidated financial statements. At least at the end of the financial year, they must therefore prepare separate financial statements for statutory purposes and separate financial statements for group purposes, also known as commercial balance sheet II .

In most accounting systems, including in accordance with Section 299 (1) of the German Commercial Code (HGB), the consolidated financial statements must be prepared on the reporting date of the parent company's annual financial statements. In Austrian accounting law, in accordance with Section 252 (1) of the Austrian Commercial Code, the consolidated financial statements can also be prepared on a different reporting date for the annual financial statements of the most significant or the majority of the companies included in the consolidated financial statements.

Should the reporting date of the consolidated financial statements deviate from the reporting date of the subsidiary, the subsidiary must generally prepare interim financial statements for the consolidated reporting date. In German and Austrian accounting law, and in very rare cases also according to IFRS, however, instead of the interim financial statements, financial statements prepared for an earlier reporting date can be included. In this case, however, the reference date may not be more than three months before the reference date of the consolidated financial statements. Events of particular importance for the asset, financial and earnings position of a company included in the consolidated financial statements, which occurred between the reporting date of this company and the reporting date of the consolidated financial statements, must be taken into account in the consolidated balance sheet and the consolidated income statement or in To be stated in the consolidated financial statements.

Many groups use group accounting guidelines as an instrument to ensure uniform accounting in the preparation of the consolidated financial statements . These describe how, from the point of view of the parent company, accounting events that occur frequently in the group are to be accounted for. In addition to the reproduction of accounting regulations, they determine how the group exercises accounting options and the method by which the group makes estimates. They also receive definitions of the data, for example balance sheet items, that are to be transmitted to the parent company as part of the group reporting. Often, inventory procedures are also specified and the processes for carrying out the inventories are described. In addition to the pure accounting regulations, many Group guidelines also contain specifications on processes for preparing consolidated financial statements, stipulations on the controls to be set up and accounting-related internal group approval regulations.

Full consolidation

Subsidiaries of the scope of consolidation in the narrower sense are generally to be included in the consolidated financial statements through full consolidation. Due to the uniform fiction, all assets and debts are fully included in the consolidated financial statements. This also includes the portion that arithmetically allotted to companies and persons not belonging to the group, also known as minorities. First of all, all of the individual financial statements (commercial balance sheet II) of the parent company and the subsidiaries that have been standardized for the consolidated financial statements are summed up in a summary. This contains numerous balance sheet items, expenses and income that would not have to be accounted for if the group were a single company. Therefore, in the next step, they will be removed by consolidation measures. These are structured as follows:

Capital consolidation
Debt consolidation
Elimination of intercompany results
Consolidation of expenses and income
Adjustment of deferred taxes.

The consolidation measures are regulated in German accounting law in § 300 to § 307 HGB, in Austrian accounting law in § 253 to § 261 UGB and in IFRS mainly in IFRS 10 and IFRS 3 .

Capital consolidation

If group companies are involved in a subsidiary, they show a participation in the subsidiary in their individual financial statements. On the other hand, the subsidiary shows equity in its separate financial statements that is (proportionally) attributable to these group companies. These items included in the consolidated financial statements are offset during capital consolidation in order to present the group as if it were a company. The remaining part of the subsidiary's equity belongs to its shareholders, who are not fully included in the consolidated financial statements. It is included in the consolidated financial statements and shown there as the capital share of external shareholders.

In most accounting systems today, capital consolidation is carried out using the purchase method . The pooling of interests method that was previously permitted as an alternative under German accounting law, IFRS and US-GAAP is no longer permitted today. The acquisition method describes for different points in time how investments in the subsidiary and the equity of the subsidiary are offset in the consolidated financial statements. These points in time are the first-time inclusion of the subsidiary in the consolidated financial statements (initial consolidation), the subsequent reporting dates (subsequent consolidation) and the point in time from which a company is no longer a subsidiary (deconsolidation). According to the purchase method, the inclusion of the subsidiary is presented as if the Group had acquired the assets and debts of the subsidiary individually at the time of initial consolidation ( asset deal ). According to German accounting law, IFRS and US GAAP, the first-time consolidation of a subsidiary must be carried out at the point in time at which this subsidiary has become. This key date of the initial consolidation determines the point in time at which the valuations are to be determined during the initial consolidation.

There are three alternative variants of capital consolidation using the purchase method:

the revaluation method,
the full goodwill method and
the book value method.

In German ( Section 301 HGB) and Austrian accounting law ( Section 254 UGB), the revaluation method is the only permitted variant. Before the changes made by the Accounting Law Modernization Act (BilMoG), the book value method could also be used optionally in German accounting law. If a group has made use of this option in the financial years that began before January 1, 2010 and consolidated subsidiaries in the corresponding consolidated financial statements using the book value method , it can also use these in the following consolidated financial statements according to Art. 66 Paragraph 3 EGHGB Consolidate book value method. On the other hand, all subsidiaries that are included in the consolidated financial statements for the first time after this reporting date are to be consolidated using the revaluation method.

In Austria, up to the 2014 Accounting Amendment Act (RÄG 2014), there was a corresponding option for fiscal years that began before December 31, 2015.

US GAAP prescribes the full goodwill method as the only method, whereas IFRS allow an option between the revaluation method and the full goodwill method.

Revaluation method

In the first step of initial consolidation using the revaluation method, the net assets of the subsidiary are measured at fair value . In addition to determining new values for assets and liabilities that have already been recognized, assets that have not yet been recognized, for example certain intangible assets created by the subsidiary, are also recognized. In Austrian accounting law, the fair value of the net assets may not exceed the acquisition cost of the shares in the subsidiary. Whether this reassessment takes place in a further developed trade balance sheet II, a trade balance sheet III or in the course of consolidation is left to the person making the balance sheet. The fair values are usually determined by internal or external valuation experts.

The revaluation of net assets leads to a revaluation of the subsidiary's equity, both of which are identical in terms of amount. Equity, in turn, is divided into a part that is attributable to the group companies and a part that is attributable to persons or companies that are not included in the scope of consolidation, so-called minorities . The part of the equity attributable to the group companies is offset (consolidated) with the participation of the group companies in the subsidiary, so that this does not appear in the consolidated financial statements. Most of the time, the proportional equity and the investments have a different value. If the value of the investments is higher, goodwill is shown in the consolidated balance sheet in the amount of the difference on the assets side . If the value of the proportional equity is higher, a negative difference arises. The treatment of this amount is regulated differently in the accounting systems. In German and Austrian accounting law, this amount is to be recognized as a separate item, “Difference from capital consolidation”. Later it is to be dissolved according to a procedure that is determined by the reason for its origin. In Austrian accounting law, this item can also be offset against goodwill from other consolidation processes. IFRS and US-GAAP stipulate that this amount should be released through profit or loss at the time of the initial valuation after a new review of the revaluation. In the course of the first-time consolidation according to IFRS and US-GAAP, the goodwill has to be allocated to the cash-generating units (CGU) or the reporting units of the group. The distribution is the basis for later performed impairment tests (English: "impairment test").

A subsequent consolidation is carried out in the subsequent financial statements. If nothing has changed in the ownership structure in the subsidiary, the initial consolidation will be repeated with the values at the time of initial consolidation. All changes in the subsidiary's net assets made after the initial consolidation thus change the group's equity. At the same time, the equity share allocated to the minorities must also be adjusted. The revalued assets and liabilities are developed based on their fair value at the time of initial consolidation. For depreciable tangible assets, for example, this serves as a basis for assessing depreciation. The difference between the book values of the commercial balance sheet II and the fair values at the time of initial consolidation are the hidden reserves and hidden burdens discovered. Changes in the following years are mostly posted to income and thus influence the group result. The goodwill capitalized in the course of the initial consolidation is subject to scheduled and, if necessary, unscheduled amortization under German and Austrian accounting law. However, US GAAP and IFRS, with the exception of IFRS for small and medium-sized enterprises (IFRS for SMEs), prohibit its scheduled amortization. Instead, they stipulate an annual impairment test. If the test determines that there is a need for depreciation, the goodwill is subject to unscheduled depreciation.

Full goodwill method

The full goodwill method is essentially identical to the revaluation method. In contrast to the former, the revaluation method only capitalizes the goodwill that is attributable to the consolidated owners in the course of consolidation. In the case of initial consolidation using the full goodwill method, however, that part of the goodwill that is attributable to the minority interests is also capitalized. On the liabilities side, the equity attributable to the minorities is shown at its fair value. Compared to the revaluation method, this initially leads to a higher balance sheet total and a higher minority share in equity.

Book value method

With the book value method, the consolidation is based on the book values of the commercial balance sheet II. A revaluation of the net assets is initially omitted. In the first step, the portion of the equity attributable to the group companies is offset against the participation of the group companies in the subsidiary (consolidated). The difference between the two is initially divided among the hidden reserves and encumbrances on the assets and debts of the subsidiary, insofar as they are attributable to the parent company. They are capitalized or posted with the assets and liabilities to which they relate. Any remaining positive difference is capitalized as goodwill. A negative difference is treated in the same way as the revaluation method.

In the subsequent consolidation, the initial consolidation is repeated with the values at the time of the initial consolidation. Thereafter, the uncovered proportional hidden reserves are further developed, whereby they share the "fate" of the assets and debts that affect them. Your change is usually posted to profit or loss and thus influences the group result. Hidden reserves of depreciable fixed assets are depreciated systematically over the useful life of the assets concerned. Goodwill is also amortized over its useful life. If the assets and liabilities are no longer capitalized or posted, the corresponding hidden reserves are released through profit or loss.

Comparison of the revaluation method and the book value method

Both the book value and the revaluation method usually come to the same results if the group companies hold a 100% stake in the subsidiary. In the case of participation by minority shareholders, the revaluation method shows higher assets and higher equity (through the revaluation reserve that is not recognized in profit or loss ). This leads to a higher balance sheet total, a higher equity ratio and, in the following years, to higher group expenses, for example through higher depreciation.

Debt consolidation

Debt consolidation eliminates the accounting for intra-group liabilities from the consolidated financial statements. This compares receivables and liabilities that group companies have against each other. According to the uniform fiction, the group should be presented as one company. Since one part of the company in a company cannot have any receivables or liabilities towards another part of the company, the intra-group obligations are eliminated by debt consolidation, i. H. Intra-group receivables and liabilities are offset against each other. In addition to the explicitly reported receivables and liabilities, part of the debt consolidation can also include other assets, prepaid expenses , provisions , contingent liabilities , contingent liabilities or other financial obligations.

If the receivables and liabilities have the same balance sheet value, they can easily be offset against each other. If the amounts of the receivables and liabilities are not the same, it must first be clarified whether there is an error in the financial statements of the subsidiaries (spurious offsetting differences). In some cases, the accounts receivable and payable in the separate financial statements of the group companies may differ due to accounting regulations (real netting differences). This can be the case, for example, with long-term receivables and liabilities in a foreign currency. Furthermore, one subsidiary may have recognized a liability in the form of a provision, while the other subsidiary may not capitalize the corresponding receivable due to its uncertainty. In these cases the difference is corrected. In the year in which the difference arises, this is recognized in profit or loss if the difference arises from a posting that affects profit or loss. In the other cases, the correction is made with no effect on income. In the following years, the difference is always corrected against equity with no effect on income.

In exceptional cases, provisions or liability obligations to group companies for which there are no receivables in the consolidated financial statements are not eliminated. This is the case if, from the Group's perspective, these correspond to obligations to third parties that would not be shown in the consolidated financial statements if they were eliminated.

Elimination of intercompany results

With the elimination of intercompany profits, profits and losses from intragroup deliveries that have changed the results of one group company and that have been capitalized as part of the acquisition or manufacturing costs of assets in another group company are eliminated . A typical case is the intra-group sale of products, whereby these are still capitalized as part of the inventory assets of the buying group company on the balance sheet date. The acquisition or production costs of the assets are reduced or increased by the sales proceeds. Furthermore, the sales of the other group company are corrected. In the elimination of intercompany results, both intercompany profits and losses are eliminated.

In most accounting systems, there is no need to eliminate intercompany results if the intercompany results to be eliminated are of minor importance. In Austrian accounting law, this does not need to be carried out in accordance with Section 256 (2) UGB if the delivery or service has been carried out under normal market conditions and the determination requires a disproportionate amount of effort.

The amount of the profit to be eliminated in the elimination of intercompany results depends on the valuation of the capitalized assets of the receiving group company. In order to fulfill the standard fiction, it is necessary to value it with group acquisition or production costs. The difference between these and the value of the assets in the individual financial statements of the group company is the profit to be eliminated. The group acquisition or production costs are the acquisition or production costs that would have to be recognized if the group were a single company. The German and Austrian accounting law give the accounting party some options when measuring the amount of the acquisition or production costs. Since the definition of these valuation criteria is to be applied analogously to the group acquisition or production costs, the accounting party has the right to choose when determining the profit to be eliminated in these accounting systems. Due to the requirement of continuity of valuation ( material balance sheet continuity ), however, he must usually exercise this immediately in the following years. IFRS and US-GAAP do not grant any options in the definition of group acquisition or production costs. There are therefore no options for measuring the interim success. If the valuation of the assets in the individual financial statements is lower because an unscheduled depreciation was carried out there, the elimination of the intercompany results is not necessary. Interim profit is eliminated both in the period in which it was realized in the individual financial statements and in the following periods in which the profit was not yet realized from a group perspective. While the success of the aggregate financial statements is corrected in the first period, it is offset against equity in the following periods.

In the case of homogeneous stocks, the determination of the assets obtained within the group is often carried out in separate accounts. If similar assets are obtained from group companies as well as from third parties, a consumption sequence such as “group in - first out” (Kifo) or “group in - last out” (kilo) is often assumed. The determination of the interim success for bulk goods is carried out using flat-rate procedures, such as the determination of an average profit margin.

In order to show the group-internal deliveries affected by the interim elimination as if the group were a company, it is often necessary to supplement the intercompany result elimination by eliminating the corresponding expenses and income in the income statement.

Consolidation of expenses and income

According to the uniform fiction, the consolidated income statement or statement of comprehensive income is to be presented as if the group were a single company. To this end, several types of eliminations and reclassifications have to be carried out, which are essentially summarized under the consolidation of expenses and income. These include:

Elimination of identical income and expenses from deliveries and services between group companies
Reclassifications of items in the profit and loss account to meet the standard fiction
Elimination of the accounting of profit distributions from one group company to another group company
Revision of write-downs on investments in group companies that are held by other group companies

While the first two measures have no impact on earnings, the last two have an impact on the group result. With full consolidation, expenses and income are eliminated in full, regardless of the participation of minorities. However, all accounting systems do not allow the elimination of expenses and income if these are of minor importance for the consolidated financial statements.

In the case of expense and income consolidation, the following eliminations are made, for example:

In the case of a delivery between group companies, income and expenses are consolidated if the receiving company has not activated the delivered items.
In the case of intra-group rental agreements, the rental income and expenses are eliminated; in the case of intra-group loan agreements, interest income and expenses are eliminated.

Proportional Consolidation

Certain joint ventures can be included in the consolidated financial statements according to German and Austrian accounting law in accordance with Section 310 HGB and Section 262 UGB, either through proportionate consolidation or using the equity method. The IFRS only allow accounting professionals this option for consolidated financial statements for fiscal years beginning before January 1, 2013. According to this, joint ventures according to IFRS 11 must be included using the equity method. The application of proportionate consolidation is not permitted by US GAAP, apart from a few special cases.

The proportionate consolidation of a joint venture requires that it is jointly managed by one or more group companies together with one or more partners who are not group companies. Proportional consolidation is carried out in the same way as full consolidation. In contrast to this, the assets, debts, expenses and income are only included in the consolidated financial statements to the extent that they are attributable to the group companies. As a result, no minority interests are shown in proportionate consolidation.

The proportionate consolidation does not correspond to the unitary fiction in the following points:

the assets and debts are only partially included in the consolidated balance sheet
the minority influence is not shown as the equity is only partially included in the consolidated balance sheet
intra-group business transactions and relationships are not completely eliminated
The consolidated balance sheet shows assets and debts that the group cannot dispose of alone

Equity method

If a company is an associated company in relation to the consolidated group companies , the participation in it must be accounted for in the consolidated financial statements using the equity method. A company is an associated company for a group company if it (possibly together with other group companies) can exercise a significant but not controlling influence on the associated company. Group companies have a “significant influence” on another company if they have the opportunity to participate in decisions about its financial and business policy but cannot control this company. A significant influence is generally presumed to be refutable if the stake is 20% or more.

In contrast to consolidation, the participation in the associated company and not its individual assets and debts are accounted for in the consolidated financial statements. The basic idea of the equity method is the book value based on the cost of the investment in mirror image (English: the development of the proportionate equity equity ) develop the associates. The pro rata profits and losses of the associated company change the book value of the investment at the point in time at which they are realized by this company. At the same time, they increase or decrease the group result, while their effect on results in the individual financial statements of the group companies is often only recorded in later periods. Other changes in the equity of the associated company, such as profit distributions, also affect the book value of the investment in the consolidated financial statements. The book value of the investment in associated companies in the consolidated financial statements can exceed the original acquisition costs of the investment.

In addition to changes in equity, depreciation on the proportionate hidden reserves and the proportionate goodwill of the associated company have an impact on the book value of the investment. The respective amount of the hidden reserves and the goodwill, which is used as the basis of assessment for the depreciation, is determined at the time of acquisition of the investment. The total amount of the proportionate hidden reserves and the proportionate goodwill is the difference between the acquisition costs of the investment and the proportionate equity of the subsidiary. The depreciation has an effect particularly in the first periods after the acquisition date, while the book value of the investment usually approaches the proportional equity of the associated company in later periods.

The proportionate elimination of interim successes that are realized in the individual financial statements of transactions between group companies and associated companies also influences the book value of the investment.

literature

Jörg Baetge , Hans-Jürgen Kirsch , Stefan Thiele: Consolidated balance sheets. 9th edition. IDW- Verlag, Düsseldorf 2011, ISBN 978-3-8021-1821-0 .
Anton Egger among others: The annual financial statements according to the company code. Volume 2: The consolidated financial statements including the International Accounting Standards and International Financial Reporting Standards. 6th edition. Linde Verlag , Vienna 2009, ISBN 978-3-7073-1464-9 .
Christoph Fröhlich: Compact group accounting. 2nd Edition. Linde Verlag , Vienna 2012, ISBN 978-3-7073-1430-4 .
Horst Gräfer, Guido A. Scheld: Basic features of group accounting. 11th edition. Erich Schmidt Verlag , Berlin 2009, ISBN 978-3-503-12061-1 .
Michael Hommel , Stefan Rammert, Jens Wüstemann : Group accounting case by case: Solutions according to HGB and IFRS. 3. Edition. Verlag Recht und Wirtschaft , Frankfurt am Main 2011, ISBN 978-3-8005-5027-2 .
Karlheinz Küting, Claus-Peter Weber: The consolidated financial statements: Practice of group accounting according to HGB and IFRS. 12th edition. Schäffer-Poeschel Verlag , Stuttgart 2010, ISBN 978-3-7910-2988-7 .
Klaus von Wysocki , Michael Wohlgemuth, Gerrit Brösel : Group accounting. 5th edition. UVK Lucius / UTB, Munich 2014, ISBN 978-3-8252-8558-6 .

Individual evidence

↑ Cf. Coenenberg et al .: Annual accounts and analysis of annual accounts , 2009, p. 593; IAS 27, No. 4
↑ ^a ^b cf. Coenenberg et al .: Annual accounts and analysis of annual accounts , 2009, p. 595.
↑ See Küting, Weber, Cassel: The consolidated financial statements , 2008, p. 77.
↑ See IAS 27, Item 4 and Küting, Weber, Cassel: The Consolidated Financial Statements , 2008, p. 75.
↑ For example the German Commercial Code ( § 297 HGB), the Austrian Company Code (§ 250 Paragraph 1 UGB ), the IFRS ( IAS 1 in conjunction with IAS 27 ) and the US GAAP .
↑ § 315 HGB and § 315a HGB i. V. m. Section 315 HGB; Section 244 (1) of the UGB
↑ Heinz Königsmaier: Currency conversion in the group, Deutscher Universitätsverlag, Wiesbaden 2004, p. 104.
↑ Regulation (EC) No. 1606/2002
↑ See Küting, Weber, Cassel: The consolidated financial statements , 2008, p. 91.

[1] Cf. Coenenberg et al .: Annual accounts and analysis of annual accounts , 2009, p. 593; IAS 27, No. 4

[Coe595-2] . Coenenberg et al .: Annual accounts and analysis of annual accounts , 2009, p. 595.

[3] See Küting, Weber, Cassel: The consolidated financial statements , 2008, p. 77.

[4] See IAS 27, Item 4 and Küting, Weber, Cassel: The Consolidated Financial Statements , 2008, p. 75.

[5] For example the German Commercial Code ( § 297 HGB), the Austrian Company Code (§ 250 Paragraph 1 UGB ), the IFRS ( IAS 1 in conjunction with IAS 27 ) and the US GAAP .

[6] § 315 HGB and § 315a HGB i. V. m. Section 315 HGB; Section 244 (1) of the UGB

[7] Heinz Königsmaier: Currency conversion in the group, Deutscher Universitätsverlag, Wiesbaden 2004, p. 104.

[8] Regulation (EC) No. 1606/2002

[9] See Küting, Weber, Cassel: The consolidated financial statements , 2008, p. 91.