Combined financial statements

Combined financial statements: represents the combination of two or more legal entities or businesses that may or may not be part of the same group, but do not by themselves meet the definition of a group under IFRS 10 Consolidated Financial Statements – i.e. a parent and all of its subsidiaries. At a simplistic level, preparing combined financial statements involves adding together two or more legal entities and eliminating any inter-company transactions – e.g. intercompany profits, revenue and expenses, receivables and payables and equity (e.g. unrealised gains and losses).

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These activities are typically under common control, BUT do not comprise an existing legal entity or group and are presented as a single reporting entity.

For some combined financial statements – i.e. financial statements that represent the combination of two entities owned by the same individual – there is no larger reporting entity and therefore no financial information for a larger reporting entity available. However, the absence of a larger reporting entity does not in itself prevent a set of combined financial statements from being in compliance with IFRS.

So in summary:

  • Combined financial statements do not include the financial statements of a parent company.
  • Combined financial statements use similar principles to those used in preparing consolidated financial statements.
  • Combined financial statements  may be useful in certain circumstances, such as:
    • When one individual owns a controlling interest in several corporations;
    • To present the financial position and results of operations of a group of subsidiaries; or
    • To combine the financial statements of companies under common management.

Combination of financial statements

The IFRSs provide no guidelines for the preparation of combined financial statements, which are therefore subject to the rules given in IAS 8.12. This article requires consideration of the most recent pronouncements of other standard-setting bodies, other financial reporting requirements and recognized industry practices. This implies that there are at least two types of combined financial statements:

  • Combined financial statements representing a group of (parent) companies under common control such as a foundation, trustee or natural person, i.e. a legal entity or natural person for which there are no legal obligations to present consolidated financial statements (as per above), or
  • Combined financial statements consisting of all separate company accounts of a group of legal entities with some shared sections, such as a summary of significant accounting policies and a combined statement of changes in equity.

Why consolidate, why combine?

If you are a director of the parent corporation or LLC, and the general public knows your parent company and its brand better than it knows the subsidiaries, consider filing a consolidated financial statement. After all, if the public hasn’t heard of your subsidiaries, but they can sing the jingle to your parent company or recite the commercial word for word, the investing public won’t be as concerned about the subsidiaries as separate entities. The investor just needs to know that the parent company is healthy and economically viable.

If it’s more important to be able to assess each entity or company on its own merits—instead of as part of the unified whole—then the combined financial statement may be more suitable. As stated earlier, the combined statement is much easier to prepare, since it simply requires a separate financial statement for each entity. A combined statement also makes sense in the event that two or more entities are under common control, but there is no actual parent company.

As with much of the reporting that is done specific to a business, which story you’re wanting to tell—in this case, assessing the parent and subsidiaries as a whole vs. assessing the individual components—will help you determine which financial statement format is better for presenting your information.

Example combined financial statements

And from real life, it is not a academic issue it is real life, something from the past:

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And here is a real life example,

Pursuant to E.U. Prospectus Regulation No. 809 /2004, an issuer’s listing prospectus must include historical financial information covering the previous three fiscal years. RWE International SE has a “complex financial history” as defined in E.U. Prospectus Regulation No. 211 /2007, because the RWE International Group did not exist as a separate group from 1 January 2013 to 31 December 2015. The legal reorganization and the transfer of businesses to the RWE International Group was completed during the first six months of 2016 up to 30 June 2016, the date when these combined financial statements were authorized for issue by the Executive Board of RWE International SE.

The Executive Board of RWE International SE therefore prepared combined financial statements for the fiscal years 1 January 2013 to 31 December 2013; 1 January 2014 to 31 December 2014 and 1 January 2015 to 31 December 2015 for the RWE International Group. The combined financial statements comprise combined income statements, combined statements of comprehensive income, combined balance sheets, combined cash flow statements, combined statements of changes in invested equity and the Notes to the combined financial statements for the fiscal years 2015, 2014 and 2013.

Here is the complete thing!!

See also: Consolidated Financial Statements

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