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PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 

 

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A number of arguments have been put forward, however, which argue that consolidated financial 

statements have certain limitations. 

(a) 

Consolidated financial statements may be misleading. 

(i) 

The solvency (liquidity) of one company may hide the insolvency of another 

(ii) 

The profit of one company may conceal the losses of another 

(iii) 

They imply that group companies will meet each others' debts (this is certainly not true: a 

parent company may watch creditors of an insolvent subsidiary go unpaid without having 

to step in) 

(b) 

There may be some difficulties in defining the group or 'entity' of companies, although IFRS 10 

has removed many of the grey areas here. 

(c) 

Where a group consists of widely diverse companies in different lines of business, a set of 

 

consolidated financial statements may obscure much important detail unless supplementary 

 

information about each part of the group's business is provided.  

 

 

 

One of the competences you require to fulfil performance objective PO7 of the PER is the ability to 

'prepare drafts or review primary financial statements in accordance with relevant accounting standards 

and policies and legislation'. You can apply the knowledge you obtain from this chapter and the 

following two chapters on consolidated financial statements to help demonstrate this competence. 

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CHAPTER 23  

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  INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS