Definition
Consolidated statements present a parent and its subsidiaries as one entity. ASC 810-10-45-1 requires intra-entity balances and transactions to be eliminated in full: intercompany receivables and payables, sales and purchases, interest, dividends and management fees. Profit on goods or assets that remain within the group at the reporting date is also removed. A noncontrolling interest does not reduce the amount eliminated.
Why it matters in an audit or review
Failure to eliminate overstates revenue, assets and liabilities, and intercompany balances that do not agree between entities point to cutoff or recording errors. The group team tests elimination journal entries, confirms that each side agrees before elimination, and checks that unrealized profit is removed from inventory and fixed assets.
Example
Illustrative: a parent sells inventory costing $60,000 to its subsidiary for $80,000, and the subsidiary still holds it at year-end. The consolidation entry is Dr Sales $80,000, Cr Cost of goods sold $60,000 and Cr Inventory $20,000. Consolidated inventory returns to the $60,000 cost and no revenue is reported.
Common mistakes
- Eliminating only the balances and leaving the unrealized profit.
- Letting unmatched intercompany differences sit in an unreconciled suspense account.
Sources
- FASB ASC 810-10-45, Consolidation, Overall, Other Presentation Matters (including 810-10-45-1 and 810-10-45-18)
- Deloitte DART, Roadmap: Noncontrolling Interests (dart.deloitte.com/USDART/home/codification/broad-transactions/asc810-10/roadmap-noncontrolling-interests)
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error