Consolidated Books of Accounts: Parent Company Responsibility - Paper Example

When an organization has several subsidiaries, it is required by law that the entity should provide consolidated books of accounts. The parent company is the one that has the responsibility of undertaking this procedure, and the details should be prepared together, portraying the firms as a single entity with the desire to show the resources that are controlled by the groups, the obligations that it is supposed to achieve, and the results obtained by using the resources available. When the Greene Company is preparing the consolidated books of accounts, all the other principles will apply.

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The notes that appear in the separate financial statements presented by a parent company and the subsidiaries should not be part of the consolidated accounts. However, it is essential to highlight that the notes that are critical to the presentation of a fair and true view of the consolidated books of accounts must always be available. The materiality of the Greene Company and subsidiaries should be observed, meaning that the details that are critical to the books of account of this group should be made available to all the interested stakeholders. Even though the subsidiaries are lumber and insurance companies, they are owned by the Greene Company and the details of their operations should be made available to the parent company.

The issue of the subsidiaries being in different industries does not affect the preparation of the consolidated statements. The law requires the Greene Company to provide its separated books of accounts and the consolidated financial statements. All the subsidiaries should be consolidated irrespective of whether they are in another sector, country, or within the same nation. The only ones that should not be incorporated in the consolidated document are the ones that are highlighted in paragraph 11. In the case of part 3 option, where the Green Company is working on acquiring two foreign companies, the firm will ensure that it is presenting its separate books of accounts and the consolidated financial statement documents.The currency used in presenting the financial documents of the foreign entities will be converted, and the consolidated one will be in the currency used by the parent organization. Therefore, there is a need to ensure that there are provisions for the currency exchange rates to ensure that the details provided are accurate. What should be eliminated in this case include the subsidiaries’ pre-acquisition profits and share capital, intragroup transactions, and balances when combing the financial statements of the Greene Company and the different subsidiaries. However, non-controlling interest and goodwill should be recognized.

It is important to highlight that if the dates for preparing the books of accounts for the various companies are not the same, the consolidated financial statements will be presented at the end of accounting period of Greene Company. The interim materials of the subsidiaries that are available at the time that the parent company prepares its books of accounts will be included in the consolidated document. An important issue to note is that Greene Company is likely to have an easier time when considering the books of accounts for the subsidiaries that are in the manufacturing industry for their financial statements that have the same items. However, when dealing with organizations in the insurance business while the Greene Company is in the manufacturing sector, their financial statements may have elements that may fail to consolidate. The issue may lead to translation errors, and this will affect the final outcomes released to the users of the books of accounts. Therefore, in comparison to the two diversification situations, Greene Company should diversify to the foreign markets and invest in the same industry. The move will even ensure that the Greene Company will manage to hedge its risks.

There exist some instances when it is not right to have a combination of similar appearing accounts between two or more subsidiaries. A subsidiary’s accounts should not be included in other subsidiaries when the control of the liabilities and assets is not under the mother company, and this may happen when a subsidiary is in receivership. The liability and assets balances of a subsidiary should be combined with those of the parent entity, but the balances of the equity figure should not be part of this combination. Additionally, if the accounts receivables and cash balances are negative, they should not be added to the positives, but they should be reclassified and highlighted as liabilities.