Consolidated Financial Statements (CFS) – Definition & Procedure

Consolidated Financial Statements (CFS) – Definition & Procedure

Consolidated Financial Statements are the budget reports of a gathering introduced as those of a solitary undertaking. For a wide assortment of reasons, for example, tax collection, speculation laws, unfamiliar trade vacillations, and different business purposes, elements may decide to direct their tasks through a few substances rather than a single lawful substance. Notwithstanding, every one of these substances stays heavily influenced by a definitive parent. Henceforth the budget summaries of the parent alone don’t speak to the whole monetary image of the money related position or then again execution of the parent.

Clients of the fiscal reports might want to know the image of the gathering as an entirety. Consequently, there is a solid case for the compulsory introduction of the united fiscal summaries so as to mirror the financial reality. Solidified fiscal reports regularly incorporate united monetary record, combined articulation of benefit and misfortune, and notes, different articulations, and informative material that structure a fundamental part thereof.

Solidified income explanation is introduced on the off chance that a parent presents its own income proclamation. The united budget reports are introduced, to the degree conceivable, in a similar arrangement as that embraced by the parent for its different budget reports. Past just provision 32 of the posting understanding commanded recorded organizations to distribute Consolidated Financial Proclamations. Neither the Companies Act, 1956 ordered the arrangement of united budget summaries nor do the Accounting Standards expect organizations to get ready Consolidated Financial Statements.

Now, let’s discuss how to prepare Consolidated Financial Statements;


Section 123(9) requires that ”where an organization has at least one auxiliaries, it shall, in expansion to independent fiscal summaries, set up a solidified budget report of the organization and of the apparent multitude of auxiliaries in similar structure and way as that of its own which will likewise be laid before the yearly regular gathering of the organization alongside the laying of its independent monetary statement. Explanation to Section 129(3) gives that “auxiliary” will incorporate partner organization what’s more, joint venture.

The first stipulation gives that the Company will likewise append alongside its budget summary, a different proclamation containing the notable highlights of the financial report of its auxiliary or auxiliaries in Form AOC-1 as endorsed under Rule 5, Companies (Accounts) Rules, 2014. The second stipulation delegates capacity to the Central Government to recommend the way in which such union will be made. In like manner, the Central Government has given Rule 6 of Companies (Accounts) Rules 2014 for the reason. The Companies Act 2013 consequently requires the compulsory arrangement of CFS. Further, the arrangements of the Act pertinent to the planning, appropriation, and review of the fiscal summaries of a holding organization will, mutatis mutandis, apply to the CFS. [Section 129(4)].

The meaning of auxiliary and partner according to the Act is unique and a lot more extensive than the definition under the AS 21. The joined perusing of AS 21 with AS 23 obviously proposes that potential value portions of the investee are not considered for deciding democratic force. Further control according to AS 21 depends on casting a ballot power as against complete offer capital proprietorship under the Act. Subsequently, there is an abnormality in the law concerning which definition ought to be considered for distinguishing proof of auxiliary.

Distinguishing proof of auxiliary for solidification reason will be made dependent on financial substance as opposed to a simple authoritative document. The CFS ought to be set up as per the bookkeeping principles and distinguishing proof of auxiliary will likewise be made as per bookkeeping norms. On the off chance that the equivalent isn’t done, this will prompt crazy outcomes and circumstances may emerge where the combination is inconceivability.



The subsequent stipulation to Section 129(3) delegates capacity to the Central Government to endorse the way in which such solidification will be made. In like manner, the Central Government has given Rule 6 of Companies (Accounts) Rules 2014 for the reason. Rule 6 of Companies (Accounts) Rule, 2014 (“Accounts Rule”) manages the way of solidification and gives that the CFS of the organization will be made as per the arrangements of Schedule III of the Act and the relevant bookkeeping guidelines.

The principal stipulation expresses that in the event of an organization secured under segment 129(3) which isn’t needed to get ready united fiscal summaries under the Accounting Standards, it will be adequate in the event that the organization conforms to arrangements on solidified fiscal summaries gave in Schedule III of the Act. Further, nothing contained in Rule 6 will apply in regard to readiness of combined budget summaries by:

  • a middle completely possessed auxiliary, other than an entirely claimed auxiliary whose prompt parent is an organization consolidated external India;
  • an organization which doesn’t have an auxiliary or auxiliaries, however, has at least one partner organizations or joint endeavors or both, for the solidification of the budget report in regard of partner organizations or joint endeavors or both, as the case might be, for the budgetary year initiating from the first day of April 2014 and finishing on the 31st March 2015;
  • an organization having auxiliary or auxiliaries joined external India just for the budgetary year initiating on or after first April 2014.


On the perusing, the over one may contend that it is the Companies Act, 2013 which chooses the need to get ready CFS and the Account Rules are pertinent just for the way of solidifying elements distinguished as auxiliaries/partners/joint endeavors. The Accounts Rule can’t have an impact on superseding the arrangements of the Act. Henceforth, CFS is readied when the organization has a partner or joint endeavor, despite the fact that it doesn’t have any auxiliary. The partner and joint endeavor are represented utilizing the value/proportionate technique in CFS. The other view conceivable is that the Accounts Rules give the way to the arrangement of CFS. On the off chance that the said Rule doesn’t have any significant bearing to a class of organizations, there is no way recommended for the readiness of CFS for the said class.

Appropriately, without a way of combination, there is no necessity to plan CFS for the said class of organizations. Further, the purpose of the correction in the Rule is just to relieve the difficulty of the organizations. For instance, there ought not to be any necessity of planning CFS for middle completely possessed auxiliaries if a definitive parent organization is getting ready CFS. Further, the meaning of “auxiliary” for sec 129 (3) incorporates partners, however, if there should arise an occurrence of partners, there is nothing of the sort as a union. Union of benefits/liabilities isn’t done if there should arise an occurrence of partners. Simply, the valuation of an interest in the partner is esteemed according to value technique for bookkeeping. In any case, such a valuation is required uniquely in “bunch accounts”.

Since an organization not having auxiliaries is never needed to get ready gathering accounts, there is no doubt of combination in the event of an organization that simply had partners. Henceforth, the advocates of this view contend that an organization isn’t needed to get ready CFS on the off chance that it doesn’t have an auxiliary however has a partner or a joint endeavor. A stricter and a more traditionalist view might be taken by planning CFS in all cases. Notwithstanding, the administrative aim of the change in Rule 6 by offering exclusion to specific organizations may not be disregarded. Proper direction ought to be given by MCA/ICAI.



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May 8, 2021

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