How to consolidate the accounts of the subsidiary company.

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MUKESH JOSHI (Querist)
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30 July 2015 In one of subsidiary company it was incorporated on May, 2014 so their AGM due date will be on December, 2015 therefore they are in no hurry to Audit there accounts and board meeting for approval of accounts also will be held after 30th September, 2015 so I want to know that as a Holding Company how can we consolidate the accounts of that Company and make consolidated balance sheet and secondly, whether it will be Ok if they approve of there accounts and board report after the Holding company approve there accounts and Board report because as per my understanding Holding Company should approve their accounts after approval of accounts of Subsidiary Company.

Rajagopalakrishnan R

Rajagopalakrishnan R (Expert)
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30 July 2015 While it is correct that the due date of AGM of the subsidiary is 31 dec 2015, the accounts as of 31/3/2015 have to be audited and approved by BOD. It is however only to be "LAID" before the AGM. So once the BOD approves, the holding company can use that accounts to consolidate. Just because the AGM of the subsidiary is not completed, the holding company is not exempt from consolidating the subsidiary accounts

MUKESH JOSHI

MUKESH JOSHI (Querist)
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31 July 2015 Thanks sir for your reply, but if they do not audit their accounts till say October, 2015 how can we make Consolidated Balance Sheet and it is required to be filed to ROC so Holding company is forced to wait till that Subsidiary audit their accounts and then can make Consolidated Balance Sheet and then file with late fees.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 Consolidating the accounts of a subsidiary company involves several steps, and it is crucial to follow the appropriate procedures to ensure accurate financial reporting. Here’s how you can handle the consolidation process given your scenario:

### **1. Understanding the Consolidation Process**

Consolidation involves combining the financial statements of the parent company and its subsidiaries to present the financial position and results of operations of the group as a whole.

**Steps for Consolidation:**

1. **Prepare Financial Statements of the Subsidiary:**
- **Initial Preparation:** Obtain the financial statements of the subsidiary as at the reporting date of the holding company.
- **Adjustments:** Make necessary adjustments for any inter-company transactions, such as sales and purchases between the holding and subsidiary companies, to eliminate intra-group profits and losses.

2. **Consolidation Entries:**
- **Eliminate Investment in Subsidiary:** Remove the investment in the subsidiary from the holding company's financial statements.
- **Adjust for Fair Value:** Adjust the subsidiary’s assets and liabilities to fair value as at the acquisition date if necessary.
- **Eliminate Inter-Company Transactions:** Eliminate inter-company transactions, balances, and unrealized profits.

3. **Prepare Consolidated Financial Statements:**
- **Combine Financial Statements:** Aggregate the financial statements of the holding company and the subsidiary to prepare the consolidated balance sheet and profit & loss account.
- **Minority Interest:** If the holding company does not own 100% of the subsidiary, calculate and include minority interest.

### **2. Handling Delay in Subsidiary’s Accounts Approval**

Given that the subsidiary’s accounts are not approved by the AGM yet, you have a few options:

1. **Use Provisional Financial Statements:**
- **Provisional Statements:** Use the draft or provisional financial statements of the subsidiary for consolidation. Ensure these are reviewed and approved by the management of the subsidiary.

2. **Consolidate Based on Draft Accounts:**
- **Draft Financials:** Consolidate based on the draft financials and include a note in the consolidated financial statements indicating that the subsidiary’s financial statements are provisional and subject to final approval.

3. **Reconcile Post-Approval:**
- **Reconcile Changes:** After the subsidiary’s financial statements are finalized and approved, reconcile any differences that might have arisen and adjust the consolidated financial statements accordingly.

### **3. Timing of Approval and Filing**

**Approval Timing:**
- **Holding Company:** The holding company can prepare and approve its consolidated financial statements based on the draft accounts of the subsidiary.
- **Subsidiary’s Approval:** It is advisable for the holding company to finalize the consolidated accounts after the subsidiary’s accounts are approved, but this is not always practical due to deadlines.

**Filing with ROC:**
- **Delay Handling:** If the subsidiary’s accounts are delayed, you will have to file the consolidated financial statements based on the provisional figures and adjust as needed. This may result in a late fee if the filing is delayed.

### **4. Documentation and Notes**

- **Disclosure:** Include a disclosure in the consolidated financial statements regarding the provisional nature of the subsidiary’s financial statements and the potential impact of any adjustments once the final accounts are approved.
- **Audit:** Ensure that the consolidated financial statements are audited, and include an audit report.

### **Sample Approach for Consolidation:**

1. **Obtain Provisional Financial Statements of the Subsidiary:**
- Use the draft or provisional statements for consolidation purposes.
2. **Prepare Consolidated Financial Statements:**
- Combine the provisional statements with the holding company’s financials.
- Make necessary adjustments for inter-company transactions and balances.
3. **Disclosures and Notes:**
- Include a note on the provisional status of the subsidiary’s financial statements.
4. **Final Adjustment:**
- After the subsidiary’s accounts are finalized, update the consolidated financials and make necessary adjustments.
5. **Filing:**
- File the consolidated financial statements with ROC, and address any late fees as necessary.

**Legal and Practical Considerations:**

- **Legal Advice:** Consult with a legal advisor or a company secretary to ensure compliance with the Companies Act and accounting standards.
- **Auditor’s Advice:** Engage with auditors to handle provisional statements and subsequent adjustments.

By following these steps, you can handle the consolidation process efficiently and ensure that the holding company’s financial reporting is accurate and compliant with regulatory requirements.