Today, in the context of economic globalization, increasing complexity of corporate structures and the active development of integration processes, consolidated financial statements are of particular importance as a key source of information about the financial position and performance of groups of companies. Consolidation of financial statements makes it possible to present the activities of interconnected organizations as a single economic entity, which significantly increases the information content of the reporting data for users, including investors, creditors, government regulators and other interested parties. In this regard, the role of understanding modern organizational and methodological aspects of the formation of such reporting is increasing.

The relevance of this topic is due to the constant complication of business practices, the expansion of companies’ activities and the need for comparability of financial information in the context of the application of both international financial reporting standards and national accounting regulations. Practice shows that the process of consolidating financial statements involves a number of methodological and organizational difficulties related to determining the perimeter of consolidation, choosing accounting methods, including intra-group transactions, and ensuring uniformity of accounting policies within the group. These circumstances require analysis and improvement of methodological approaches to the preparation of consolidated financial statements.

Organizational aspects of the consolidation process are of particular importance, including the distribution of functions among reporting participants, the establishment of an effective internal control system, and the use of specialized information systems and digital technologies. With the digitalization of accounting processes and the introduction of automated solutions, there is an increasing need to adapt traditional methods to modern accounting conditions, which makes this issue a subject of increased interest.

Analyzing the theoretical background, first of all, it should be noted that consolidated financial statements are prepared in order to determine the nature of the impact on the financial condition of organizations of their investments in the capital of other (subsidiaries and dependent) legal entities, transactions and transactions with these legal entities and to ensure the ability to manage their activities. Along with this, it allows users of the financial statements to understand the financial condition of the group as a whole.

According to Federal Law No. 208-FZ «On Consolidated Financial Statements» dated July 27, 2010, a certain list of companies is required to prepare, submit and publish consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), among them:

– credit organizations;

– insurance companies;

– non-governmental pension funds (NPFs);

– clearing organizations;

– federal state unitary enterprises, the list of which is determined by the Government of the Russian Federation;

– joint-stock companies whose shares are federally owned, the list of which is approved by the Government of the Russian Federation;

– other organizations whose securities are traded on the securities market and included in the quotation list;

– organizations whose constituent documents provide for the presentation and disclosure of consolidated financial statements [1].

Parent organizations are responsible for the preparation and publication of consolidated financial statements, which include: organizations that influence decisions made by subsidiaries or enterprises belonging to the group; organizations that own 51 percent or more of the shares of a joint-stock company or the authorized capital of an LLC.

It should be noted that the consolidated financial statements of the parent organization and its subsidiaries include information on the financial and economic activities of those enterprises that operate abroad. According to the requirements of accounting legislation, all financial statements must be written in Russian and be kept in the national currency — rubles, all documents written in a foreign language must be provided with a line-by-line translation, and all calculations must be translated into rubles, taking into account the exchange rate of the Central Bank of the Russian Federation.

Gazprom PJSC, Rostelecom PJSC, Rosatom State Corporation and others can be cited as examples of the largest companies in the Russian Federation that compile consolidated financial statements.

From the point of view of regulatory support for this process, it is important to note that the previously mentioned federal Law No. 208-FZ of July 27, 2010 imposes certain requirements for consolidated financial statements. This law refers to the requirements set out in IFRS, according to which consolidated financial statements include:

– statement of financial position;

– statement of profit and loss and other components of the total financial result;

– cash flow statement;

– capital change report;

– explanations to the statement of financial position and the statement of profit and loss and other components of the total financial result [7].

The prepared statements should be supported by an external auditor’s report. Such an audit is mandatory, because without it, the report will be invalid. The explanations of the Ministry of Finance allow for the coincidence of the dates on the financial statements and the auditor’s report, since according to the law, during the audit, the auditor is required to inform the management of the enterprise about the identified inconsistencies so that it is possible to take the necessary measures to eliminate them. Thus, technically, the audit can be completed simultaneously with the completion of work on the preparation of reports.

When choosing an auditor, it is necessary to pay attention to the date of receipt of the qualification certificate, since if it was issued before 31.12.2010 (before the date of approval of IFRS standards) and after that the auditor did not undergo additional certification, then he cannot be admitted to the audit.

Consolidated financial statements in accordance with Federal Law No. 208 are provided within a certain time frame. Thus, the annual consolidated financial statements are submitted before the general meeting of the organization’s participants, but no later than 120 days after the end of the year for which it was compiled. Interim financial statements are submitted no later than 60 days after the end of the reporting period for which they were compiled. If the last day of the deadline for submitting consolidated financial statements falls on a day recognized as a weekend or non-working holiday in accordance with the legislation of the Russian Federation, the first working day following it is considered to be such [1].

According to Article 47 of the Federal Law «On Joint Stock Companies», the annual General Meeting of Shareholders must decide on the approval of annual reports, annual accounting statements, including profit and loss statements of the company, as well as profit distribution, payment of dividends. According to article 34 of the Federal Law «On Limited Liability Companies», the annual results of the company’s activities are approved at the next general meeting of the company’s participants.

Consolidated financial statements are presented to the participants and owners of the organization’s property. Credit and insurance organizations, non-governmental pension funds, investment fund management companies, clearing organizations, and organizations whose securities are admitted to organized trading and are the parent organizations of bank holding companies submit consolidated financial statements to the Central Bank of the Russian Federation within the time limits set by it.

In general, the following stages can be distinguished in the work on consolidated financial statements:

1. preparation of final documents;
2. signing by the head;
3. External audit;
4. provision to the general meeting of owners;
5. referral to the authorized state body;
6. publication [4].

However, we note that only annual reports are subject to mandatory compilation and publication. An interim report is drawn up only in cases where it is provided for by accounting policies or constituent documents, as well as by organizations that are the parent organizations of bank holdings.

However, it is important to note that before preparing consolidated financial statements in accordance with international standards, it is necessary to designate its so-called «perimeter». In other words, it is necessary to outline the circle of companies that form a group and establish rules for consolidation within it.

The consolidation perimeter is a list of companies whose financial position and performance data should be included in the consolidated financial statements. To determine it, it is necessary to decide whether the company has authority over the investment object, and then determine other criteria for control.

When preparing consolidated financial statements in a company, analyzing the information on the «Financial investments» account, it is necessary to identify their presence in three types of organizations:

– Subsidiaries — controlled by the parent company, with a quantitative ownership interest of more than 50%.

– Associates, on whose activities the investor has significant influence, but not control. Significant influence is characterized by the ability to participate in decision-making on the financial or operational policy of the organization, and the quantitative share of participation is 20-50%.

– Jointly controlled – legal entities that are under the joint control of the participants on the basis of an agreement concluded between them, in which none of the parties exercises sole control. This form of association is also characterized by investor control, but control is distributed among several participants. The quantitative shares of the participants are equal. [10]

IFRS is mainly aimed at the formation of consolidated financial statements. So, if a company has subsidiaries, then according to IFRS it is obliged to prepare such reports. At the same time, the fundamental difference between consolidated and individual reporting of a legal entity is that the former includes indicators of not one, but several companies, i.e., combining individual ones. The technique of the question is to determine which companies to consolidate and how to do it.

In practice, the reporting entity may have investments in subsidiaries, which in turn also have investments in subsidiaries or associates and jointly controlled, etc. When forming consolidated financial statements, it is important to include all companies subject to consolidation in the financial statements.

Based on this, organizations should adhere to certain principles when forming such reports. Some of them overlap with those typical of conventional financial reporting, such as the principles of completeness and materiality. However, there are also specific ones that are relevant only for consolidated financial statements, for example, the principle of consistency in the use of consolidation and valuation methods, the principle of a functioning enterprise, etc.

In order for the information in the consolidated financial statements to be comparable when consolidating (combining) the data of individual organizations, two key rules must be observed:

1. Consolidated financial statements for similar transactions should be prepared on the basis of a single accounting policy, which is achievable in two ways.:

– the group of companies develops a single accounting policy and separate structures form individual reports immediately on it, in this case, recalculations are not required.;

– each company of the group forms its individual financial statements according to its own accounting policy, however, during consolidation, adjustments will be required to align the data of individual reporting with the accounting policy of the group.

In the event that it seems impractical or impracticable to use a single approach, such a fact is disclosed in the notes to the financial statements indicating the proportionate shares of consolidated financial statements items to which different accounting policies have been applied.

2. The financial statements of all the organizations of the group to be merged must be prepared as of the same reporting date and for the same reporting period. For Russian companies where the reporting date and the reporting period are standardized, this rule is executed automatically. However, if the group has foreign companies subject to consolidation that have a different reporting date and reporting period from the Russian ones, then additional financial statements will be required in such cases.

These rules also apply to associated and jointly controlled organizations [9].

The responsibility for the reliability and compliance with the consolidated financial statements procedure lies with the head of the parent company. The accounting statements of subsidiaries and affiliated organizations are included in the consolidated financial statements of the group from the first day of the month following the month when the parent company acquired the corresponding number of shares or shares in the authorized capital of the subsidiary.

It is important to note that the concept of «control over an investment object» is currently formulated in IFRS: An investor has control over an investment object if he is exposed to the risks associated with variable income from participation in the object, or has the right to receive such income, as well as the ability to influence him through the exercise of his powers with respect to the investment object. In this case, the parent company’s control over a subsidiary is a special case of the investor’s control over the investment object [6].

In general, it can be said that a parent company controls a subsidiary when it directly or indirectly owns more than half of its voting shares, i.e. when participation ranges from 50% to 100%.

As noted earlier, subsidiaries are consolidated using the full consolidation method, which combines assets, liabilities, capital, income and expenses line by line. In this case, the book value of the parent company’s investments in the subsidiary’s capital is mutually excluded, as well as intra-group assets and operations are eliminated, excluded. The indicators are summarized in full, even if the parent company’s share is less than 100%.

Let’s identify several important features:

– the share capital is not summed up and the share capital of the parent company is reflected in the consolidated report.;

– the parent company’s investment in a subsidiary is reflected in the consolidated statement as the parent’s share of the net assets of the subsidiary;

– if the value of the investment exceeds the share of net assets, goodwill is reflected, if less, income from a profitable transaction.

– the group’s retained earnings are determined by summing the parent company’s data and its share of the subsidiary’s retained earnings received after the purchase date.

– the non-controlling interest column appears in the consolidated report, i.e., the share in the net assets of a subsidiary that is not controlled by the parent company [5].

At the same time, accounting for consolidation of associated and jointly controlled organizations deserves special attention.

As noted earlier, an associate is an organization over which the investor company has significant influence, but which is neither a subsidiary nor a jointly controlled entity. The presence of such influence on the part of the investor is usually confirmed in one or more of the following ways:

– representation on the board of directors or a similar governing body of the investment object;

– participation in the process of developing financial and production policy;

– large transactions between the investor and the investment object;

– exchange of management personnel;

– providing important technical information [8].

It should be understood that a company has significant influence if it owns, directly or indirectly through other subsidiaries, at least 20% of the voting shares of the investment property. Based on the fact that an investor company can significantly influence the financial and operational policies of an associated organization, but does not have control over it, the method of partial consolidation of financial statements is provided. Its essence is that in the investor’s financial statements, investments are reflected at the cost of their acquisition, adjusted for the investor’s share of the profit received by the associated organization after the acquisition.

Jointly controlled entities are several companies linked by contractual agreements establishing joint activities and assuming that the parties have rights to net assets. This form of association is characterized by equal shares of control from several investors. Based on this, partial consolidation is also applied, or in other words, the equity method.

Consolidation of jointly controlled entities is carried out in the same way as consolidation of associated entities. It should be understood that information about the availability of investments in such organizations and the group’s transactions with them is subject to separate disclosure in the financial statements. Usually, jointly controlled organizations are created when the interests of several countries are involved [3].

The financial statements of associated and jointly controlled entities are not consolidated on an article-by-article basis, as the parent company does not control them, but significantly affects their significant activities. Accordingly, the share of non-controlling shareholders in the net assets of such organizations is not included in the consolidated financial statements. The cost of investments reflected in the parent company’s balance sheet is replaced by its share in the net assets of the associated and jointly controlled entity. In this case, goodwill arises if the value of the share exceeds the investment.

The group’s retained earnings are increased by the share owned by the parent company, and dividends from associated and jointly controlled entities are replaced by the parent’s share of the profits of such entities.

These consolidation methods are applied from the moment control, significant influence, and joint control are obtained and end at the moment they are lost, for example, upon disposal of an investment.

Sometimes there are cases when a company acquires shares or equity interests and the amount paid for their acquisition coincides with the value of its net assets. In IFRS, such transactions are called «business combinations» and are accounted for using the purchase method. It requires that acquired assets and liabilities be measured at fair value in the consolidated financial statements, including such identifiable intangible assets that were not reflected in the subsidiary’s individual financial statements. After that, the amount of goodwill is determined as the difference between the amount of remuneration transferred for an investment in a subsidiary and the share of net assets acquired at fair value at the acquisition date [2].

To summarize, it should be noted that consolidated financial statements in modern conditions act not only as a tool for summarizing accounting information, but also as an essential element of the corporate governance and financial analysis system. The quality and reliability of consolidated indicators directly depend on the validity of the applied methodological approaches and the effectiveness of organizational support for the consolidation process. Improving the reporting methodology, unifying accounting policies within the group and correctly defining the consolidation perimeter make it possible to ensure transparency of financial results and increase the level of trust on the part of external and internal users of information.

Further development of the organizational and methodological foundations for the preparation of consolidated financial statements is a prerequisite for the adaptation of the accounting system to a dynamically changing economic environment. Research in this area creates prerequisites for the formation of more flexible and effective consolidation mechanisms that can take into account the specifics of corporate structures and regulatory requirements. This, in turn, helps to increase the analytical value of reporting and strengthen the financial stability of the groups of companies in the long term.