Transcript Koncernregnskaber

Group accounts
Learning objectives
• Know the criteria for a group in relation to financial statements - The
basic criterion is decisive influence
• Understand the purpose of the group account as an element in the
financial statements
• Understand and be able to use the consolidation schedule
• Be able to consolidate the statements/accounts of the consolidating
companies
• Understand and be able to eliminate the double counting caused by
internal share ownership by means of the ”past equity method”
• Understand the Equity method/internal value method for
measurement of shares in D in the statements of the parent company
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What is a group?
• Basically a group can be defined as a
financial combination of legally
independent companies.
• A group may be established under different
corporate forms (partnerships, operating
foundations, co-operative societies, public
limited (liability) companies, private limited
companies)
• A group consists of a parent company and
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its subsidiary companies
DCAA Bil. B4 - definition of a
group.
• According to the DCAA parent companies:
a) hold the majority of the voting rights in another company,
b) are company members and have a right to appoint and
dismiss a majority of the members in the top management of
the other company (board of directors and/or corporate
management),
c) are company members and have a right to exercise a
controlling influence over another company on the basis of
the articles of association of or agreement with that company,
d) are company members and hold the majority of the voting
rights in another company on the basis of agreement with
other members or
e) own equity interests in another company and exercise a
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controlling influence on this company.
DCAA Bil. A5, A1 and B5 definition of a group.
• In this Act company members are:
Stockholders, shareholders or others who have
equity interests in a company
• In this law equity interests are:
Holdings in public limited companies (shares), in
private limited companies (shares) and also in the
share capital of other companies
• Affiliated companies: The subsidiary companies
of a company, its parent companies and their
subsidiary companies (”the sisters, aunts, and
cousins”)
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DCAA Bil. B2 - definition of a
group.
• In this Act subsidiary companies are:
Companies with which a company directly
or indirectly have the connections
mentioned under the definition of a parent
company
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DCAA bil. B4 - definition of a
group.
• In practice a business is normally a parent
because it owns the majority of the voting
rights in the subsidiary
– A company is very rarely a parent solely as a
result of the other criteria alone
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DCAA Bil. B6 and 7 - direct and
indirect voting rights etc.
• In the calculation of voting rights and rights
to appoint and dismiss members of
management organs, both directly owned
equity interests (by the parent on which the
parent can thus exercise the voting right)
and indirectly owned equity interests (on
which the parent can exercise the voting
right by controlling the subsidiary with the
equity interests) must be included
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Consolidated financial statements
• Consolidated financial statements are an element of the
financial statements of the parent company; they are a
supplement to the financial statements
• Particular specification requirements concerning group
relations in the parent and subsidiary financial statements.
The following items are specified in the balance sheet (they
are eliminated in the consolidated financial statements):
Financial fixed assets
Equity interests in/receivables from affiliated companies
Current assets - receivables:
Receivables from affiliated companies
Current assets - securities and equity interests
Equity interests in affiliated companies
Debt
Debt owing to affiliated companies
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Consolidated financial statements
• The income statement: Separate items for
– ”Income from equity interests in affiliated companies”,
– ”other financial income from affiliated companies”
and
– ”financial expenses resulting from affiliated
companies”
• Note information requirements: There are a series
of requirements to the information in notes
concerning the consolidated financial statements DCAA §§ 97 (category C/ guarantee commitments)
and 72 (category B/ The name of the parent
company/ address/information of the share
owned/result of operations/owners’ equity)
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Consolidated financial statements
• Purpose of consolidated financial
statements
• Basis of law
• Duty to prepare consolidated financial
statements, including exemptions and
leaving out
• Form/substance
• Consolidation
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Purpose of consolidated financial
statements
• To provide an over-all picture of the financial position and
the result of operations of the entire group.
– To summarize information which is already stated in the
individual financial statements (no new information).
E.g. the over-all debt/receivables to and from the external
environment
– To describe matters such as they are when the accounting
group is the accounting unit (new information) • E.g. the total sales of the group to the external environment
(which has been eliminated for trade between the group
companies)
• To inform interest groups of the parent company and the
subsidiary companies (and management of the group?)
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Basis of law
• DCAA, especially section VI ”Consolidated
financial statements and financial
statements for mergers etc.”
• Guideline for consolidated financial
statements - issued by the Danish
Commerce and Companies Agency
(DCCA)
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Liability to prepare consolidated
financial statements exemptions/leaving out
• DCAA § 2, quote:
• ”For every accounting year the companies mentioned in
§3, paragraph 1, must prepare consolidated financial
statements according to this Act. Unless otherwise stated in
§§18, 22, 78, 102 or 109, the consolidated financial
statements must be supplemented with:
– 1) financial statements for the group controlled by the company
(consolidated financial statements)
– 2) management report for the group controlled by the company
• Exemptions:
– small groups, §110 - DKK20 million balance sheet total/DKK40 million
net sales/50 employees
– Parent companies that are themselves 100% owned by another company
(or close to 100% owned) , §112 - a series of conditions
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Liability to prepare consolidated
financial statements exemptions/leaving out
• Leaving out:
– In certain cases it is possible to leave out a subsidiary company
from the consolidated financial statements, cf. DCAA § 114,
paragraph 2
• if owing to special circumstances the parent company cannot exercise
its owner influence on the subsidiary
• if owing to special circumstances the parent company cannot get the
necessary information
• Ownership which is solely motivated as a temporary and short term
arrangement
– In certain cases subsidiary companies must be left out from the
consolidated financial statements, cf. DCAA §114, paragraph 3
• Especially in terms of subsidiary companies within financial business
– The regulations do not leave much room for interpretation - it takes
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very good arguments/reasons for leaving out a subsidiary company
Form/substance
• DCAA § 115:
”Consolidated financial statements must show the assets
and liabilities of the consolidated companies, their
financial position and result of operations, as if they
combined were one single company.”
”As if” = legal fiction, but financial reality
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Form/substance
• DCAA § 117, paragraph 1:
”By consolidation uniform items in the financial statements
are added item by item so that uniform revenue and
expenses as well as assets and liabilities are totaled for all
group companies. Adjustments must be made, though,
which are necessary on the basis of the special
circumstances which apply to consolidated financial
statements and are different from ordinary financial
statements.”
* DCAA §122, paragraph 2
”The equity interests of one consolidated company in
another consolidated company, measured at their cost
price, are set off from the consolidated statements and
against the owned companies’ net assets, measured at their
current accounting value of the consolidated companies, cf.
paragraph 1. The goodwill resulting from this setoff is
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determined at the time of group establishment.”
Form/substance
• DCAA § 120 – eliminations
• 1) Receivables and liabilities between the consolidated
companies
• 2) income and expenses resulting from transactions between
the consolidated companies and
• 3) profit and loss resulting from transactions between the
consolidated companies, which is included in the items’
booked value
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Form/substance
• Consolidated financial statements are prepared
according to the same rules as the parent company
• The applied accounting principles in the group
must be the same. The valuation principles of the
parent company are usually used for the group.
DCAA §119
• The same accounting year as the parent company.
If more than 3 months ahead of the balance sheet
day of the parent company then special financial
statements need to be prepared as of the balance
sheet day of the parent company. DCAA §116
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Consolidated financial statements
• The consolidated financial statements are the
result of a additions and a number of
eliminations
• Consolidation = a summation of information in
the individual companies’ financial statements
in consolidated financial statements
• Eliminations => summarize the information so
that the group is the accounting unit (as if there
were only one company), i.e. only include
those transactions which have been made with
external parties
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