The economic organization of companies is experiencing a bigger fragmentation of assets and liabilities which are managed in a centralized manner, through a plurality of legal entities with separate legal personality, but with an economic and management subordination to a headquarter (the dominant company) who is the one that takes decisions and manages them all: the group of companies.
The accounting description of the “group of companies” leads to the consolidated financial statements.
In this type of business concentration, the accounting and financial information provided by each of the companies individually is not enough due to several reasons:
- Possible financial operations between sister companies can may include non-relevant credits and debits when operating under the same economic and financial policy.
The individual results of sister companies might have been affected by the group internal decisions, without being undertaken in front of third parties.
Some of the group macroeconomic figures cannot be obtained by the simple add of individual figures.
The consolidated financial statements have the main goal to provide the group’s economic and financial information, being considered this one as an economic entity.
The consolidated financial statements include:
- Consolidated Balance Sheet.
- Consolidated Statement of Changes in Equity
- Consolidated Profit and Loss
- Notes to the Consolidated Financial Statements.
- Consolidated Statement of Cash Flows
Legal obligation to consolidate and excemptions:
On general terms, the groups and subgroups of societies have the duty to consolidate their financial statements as established, for example, in the NIC number 27, in the VII EU Directive and in the Royal Decree 1815/1991.
More specifically, in the Royal Decree 1815/1991 it is established each dominant society as well as the dependent societies which are themselves the dominant society of others, have the duty to issue de Consolidated Financial Statements. This duty does not exempt the companies integrating a group or subgroup of issuing their individual Financial Statements. In this groups where it is not possible to identify the dominant society, the duty to issue the Consolidated Financial Statements lies on the society with higher assets in the date of the first consolidation.
Nevertheless, in the case where no has issued securities admitted to trading on a regulated market, the dominant societies do not have the duty to consolidate in the following scenarios.
1) When the group or subgroup dimension does not overpass the legal limits (exemption for dimension)
In accordance with what establishes the Commercial Code*, the Spanish Corporate Law in accordance with the text of the law 2/1995 Limited liability companies, the NFCAC and the transitory provision of the Royal Decree 1985/1991, the group dimension is determined by the following variables of the overall group of societies:
- Total assets
- Average number of employees.
The two firs variables can be quantified:
- Considering the consolidated figures, that is, after the appropriated eliminations of the consolidation process.
- Computing the nominal figures which are obtained from the individual financial statements of each of the companies forming the group.
Therefore, the duty to consolidate will be of no application if, at the period en closing and during two fiscal years of the dominant society, the group does not exceed two of the three following limits:
- The total consolidated assets does not exceed 14.600.000 eur.
- The total consolidated turnover does not exceed 29.200.000 eur.
- The total consolidated number of employees does not exceed 250.
2) When the subgroups meet the requirements demanded (exemption for dependency): A subgroup can decide not to consolidate the financial statements when the 50% or more of the social capital of the group’s dominant society belongs to a society registered in some EU state. Additionally, the following circumstances must be fulfilled:
a.-) The subgroup dominant company’s minority shareholders which has at least the 10% of the social shares have not applied for the issuance of the consolidated financial statements during the six months before the year end closing.
b.-) That the society exempted of consolidating together with the all the other societies which had to be included in the consolidation, will effectively be included in the annual accounts of a bigger group with a dominant society registered in a EU state.
c.-) The subgroup dominant company informs in his memory of this exemption, about the group it belongs to and about the registered office and legal address of the dominant society.
d.-) The financial statements, the management report and the audit report of the subgroup dominant society are deposited at the Business Register.