Consolidated Financial Statements in India: Who Must Prepare Them and How

Once a company has a subsidiary, an associate or a joint venture, its own accounts no longer tell the whole story. The Companies Act requires it to prepare consolidated financial statements as well. This guide explains when that applies and how it's done.

The Requirement

Under Section 129(3) of the Companies Act, 2013, a company with one or more subsidiaries, associates or joint ventures must prepare a consolidated financial statement of the company and all of them, in the same form and manner as its own. It's in addition to, not instead of, its standalone financial statements.

What Counts

• Subsidiary: a company in which the parent controls the board or holds more than half the share capital, directly or with its other subsidiaries.
• Associate: a company over which the parent has significant influence — generally 20% or more of voting power — but not control.
• Joint venture: an arrangement in which the parent shares joint control with others.

Foreign subsidiaries, associates and joint ventures count too.

The Exemption for Intermediate Companies

A company doesn't need to prepare consolidated statements if it's a wholly-owned subsidiary, or a partially-owned subsidiary whose other members have been informed and don't object, its securities aren't listed or in the process of listing, and its ultimate or intermediate holding company files consolidated statements that comply with the applicable standards. The conditions in the rules must all be met.

AOC-1

Along with its financial statements, the parent attaches a statement in Form AOC-1 setting out the salient features of each subsidiary, associate and joint venture — capital, reserves, total assets and liabilities, turnover, profit and shareholding.

Audit, Adoption and Filing

1. The parent's auditor audits the consolidated statements and issues a separate report on them.
2. The board approves both the standalone and consolidated statements.
3. Both are laid before the shareholders at the AGM.
4. The consolidated statements are filed with the ROC in AOC-4 CFS, alongside AOC-4 for the standalone statements.

How Consolidation Works

• Subsidiaries are combined line by line with the parent.
• Intercompany balances, transactions and unrealised profits are eliminated.
• The share belonging to outside shareholders is shown as non-controlling interest.
• Associates and joint ventures are generally accounted for by the equity method, as a single investment line adjusted for the parent's share of profit.

Getting Help

Think Filing prepares consolidated financial statements and AOC-1 for groups with Indian and overseas entities, and files AOC-4 CFS.