Glossary

Consolidation glossary

What is in this glossary?

The consolidation glossary defines the accounting terms used when many companies are combined into one set of group accounts. Each entry gives a short definition, and links to the posts that use the term.

36 terms

A

Consolidation
Acquisition date
The date on which a parent obtains control of another company. The new subsidiary's results are included in the group accounts from this date.
Consolidation
Associate
A company over which an investor has significant influence but not control, usually shown by holding 20 percent or more of the votes. It is included in the group accounts by the equity method.
Multi-currency
Average rate
The exchange rate for a period, usually the month, used to translate a foreign subsidiary's income and expenses into the group's presentation currency.

B

Consolidation
Bargain purchase
An acquisition where the fair value of the net assets acquired is higher than the price paid. After the acquirer checks its figures, the excess is recognised as a gain in profit or loss.

C

Multi-currency
Closing rate
The spot exchange rate on the last day of the reporting period, used to translate a foreign subsidiary's assets and liabilities.
Group reporting
Consolidated financial statements
The financial statements of a group presented as those of a single economic entity, with the parent's and subsidiaries' figures combined and intragroup items removed.
Consolidation
Control
Power over a company, exposure to its variable returns, and the ability to use that power to affect those returns. Control makes the company a subsidiary and brings it into the consolidation.
Intercompany
Counterparty
The other group company in an intercompany balance or transaction.
CTA: see Translation reserve

D

Consolidation
Deconsolidation
Removing a subsidiary from the group accounts from the date the parent loses control, with a gain or loss recognised on the disposal.

E

Intercompany
Elimination entry
A group-level entry that removes balances and transactions between group companies.
Consolidation
Equity method
A way of including an associate or joint venture: the investment starts at cost and is adjusted each period for the investor's share of the investee's profit or loss and other changes in its net assets.

F

Consolidation
Fair value adjustment
An adjustment made on consolidation to bring a subsidiary's identifiable assets and liabilities to fair value at the acquisition date.
FCTR: see Translation reserve
Multi-currency
Functional currency
The currency of the main economic environment in which a company operates. It is usually the currency the company records its transactions in.

G

Consolidation
Goodwill
The amount by which the price paid for an acquisition, together with any non-controlling interest and any previously held stake, exceeds the fair value of the identifiable net assets acquired.
Accounting systems
Group chart of accounts
One list of accounts that every company's own accounts are mapped to, so that figures from different companies and systems add up line by line.

H

Multi-currency
Historical rate
The exchange rate on the date a transaction took place or an item arose. It is used to record a foreign currency transaction and for the equity of a foreign subsidiary at the date it arose.
Multi-currency
Hyperinflationary economy
An economy where cumulative inflation over three years is approaching or exceeds 100 percent, among other signs. A subsidiary whose functional currency is that of such an economy restates its figures under IAS 29 before translation.

I

Intercompany
In-transit items
Items recorded by one company that the other has not yet recorded at the period end, such as an invoice, a payment or goods.
Intercompany
Intercompany loan
A loan between two companies in the same group. The interest is eliminated in consolidation, and exchange differences are treated according to whether repayment is planned.
Intercompany
Intercompany reconciliation
Comparing what each group company records with its counterparties and explaining every difference.

J

Consolidation
Joint venture
An arrangement in which the parties with joint control have rights to its net assets. A joint venture is included in the group accounts by the equity method.

M

Minority interest: see Non-controlling interest
Multi-currency
Monetary item
Units of currency held, and assets and liabilities to be received or paid in a fixed or determinable number of units of currency, such as cash, receivables and loans.

N

Multi-currency
Net investment in a foreign operation
The parent's interest in the net assets of a foreign subsidiary, including long-term loans that will not be repaid in the foreseeable future.
Intercompany
Netting
Offsetting what two group companies owe each other so that one payment settles the difference.
Consolidation
Non-controlling interest
The share of a subsidiary's equity and profit that belongs to owners outside the group.

P

Consolidation
Parent
A company that controls one or more other companies.
Consolidation
Pre-acquisition reserves
The reserves a subsidiary held at the date it was acquired. They belong to the previous owners, so they are eliminated against the parent's investment and are not part of group reserves.
Multi-currency
Presentation currency
The currency in which the group's financial statements are presented.

R

Reporting currency: see Presentation currency

S

Statistical accounts and KPIs
Statistical account
A non-money figure such as headcount, units sold or stores, held alongside the financial accounts so that ratios can be calculated from the same data.
Consolidation
Step acquisition
Gaining control of a company in stages. The stake held before is remeasured to fair value at the date control is gained, with the difference in profit or loss.
Consolidation
Subsidiary
A company that is controlled by another company, its parent.

T

Intercompany
Transfer pricing
The price set for goods, services or funds passed between related companies, which tax rules expect to match what independent parties would agree.
Multi-currency
Translation reserve
The part of group equity that holds exchange differences from translating a foreign subsidiary into the group's currency.
Accounting systems
Trial balance
A list of every account balance at a date, with total debits equal to total credits. It is the starting point for consolidating a company's figures.

U

Intercompany
Unrealised profit
Profit one group company has recorded on a sale to another while the buyer still holds the goods.

W

Month-end close
Working papers
The schedules behind the group figures: mapping, translation, eliminations and reconciliations. They let a reviewer trace any group number back to the companies' books.

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