The composition of consolidated balance sheet for obliged subjects.


Consolidated financial statements are financial statement documents presenting an aggregated look at the economic and financial position and net assets of a parent company and its subsidiaries and providing a picture of the overall health of an entire group of companies that become a single company as opposed to one company’s standalone position; these companies are considered to be divisions or subsidiaries of a single big company. A “group” is defined as a group of companies that are controlled by one of them, i.e. the parent company. Therefore, control plays a key role during the setting up of the group, according to provisions of the Legislative Decree No. 127/1991. More specifically, article 26 of the above mentioned Legislative Decree gives a definition of control with reference to number 1 (de jure control) and 2 (de facto control) of paragraph 1 of article 2359 of Italian Civil Code and considers two possible further cases related to the dominant influence of the parent company resulting from contract terms or statutory clauses and to the control of voting rights based on agreements with other partners. The parent company prepares the consolidated financial statements consolidating the values of assets, liabilities, equity, income, expenses and cash flows of the directly or indirectly controlled companies and eliminating intra-group transactions.

As a result, all items in the statement of financial position and income statement resulting from intra-group relationships should be eliminated, as they are no more important when companies are considered a single entity. For example, in case of a transfer of goods between two companies of the same group, profits of one company that are equal to costs of the other company will be eliminated by means of specific consolidation entries.

The first step to prepare consolidated financial statements is the definition of “consolidation area”, i.e. the companies that should be considered.


According to article 25 of the Legislative Decree No. 127/91 companies that are obliged to prepare consolidated financial statements are basically composed by joint stock companies that control at least one company.

According to article 27 of the Legislative Decree No. 127/91 a parent company is not required to present consolidated financial statements if the following four conditions are met:

  1. the group has some specific characteristics in terms of total assets, net turnover and average number of employees (currently: 20 million total assets, 40 million net turnover and 250 as average number of employees);
  2. if consolidated financial statements of higher level already exist, where the exempted parent company (the sub-holding company) and its subsidiaries are inserted;
  3. if all subsidiaries are irrelevant;
  4. if subsidiaries satisfy all requirements to be excluded from the consolidation area according to article 28 of the Legislative Decree No. 127/1991 (irrelevance, limits related to the rights of the parent company, impossibility to get information and participation owned for sale purposes).

Consolidated financial statements, similarly to financial statements, are composed by the following documents:

  • consolidated statement of assets and liabilities;
  • consolidated profit and loss account;
  • consolidated financial statement;
  • consolidated notes to the financial statements.

In order to prepare consolidated financial statements of the group it is necessary to choose a consolidation method and to identify a method to treat the interests of third parties related to equity and fiscal year result.

Some possible solutions are:

  1. the full consolidation method;
  2. the proportional consolidation method;
  3. the equity method.

The full consolidation method

By exploiting this method, consolidated financial statements express:

  1. consolidated assets and liabilities, included gains and losses related to assets and liabilities of subsidiaries after having allocated the deficit on write-offs that emerged after the consolidation of subsidiaries;
  2. the share capital and reserves of the parent company;
  3. retained earnings and other equity reserves due to consolidation corrections after the first consolidation;
  4. profits or losses of consolidated financial statements;
  5. the equity share profit for the year that can be attributable to minority partners.

The proportional consolidation method

According to article 37 of the Legislative Decree No. 127/91, if a company included in the consolidation area owns a share with third partners and according to agreements established with them, this share percentage should not be lower than 20%  (10%  if the joint venture company owns shares listed on the stock exchange); as a result, this company, also called joint venture company, can be included in the consolidation area by exploiting the proportional consolidation method. This method is based on the consolidation of single assets and liabilities of the joint venture company, whose value corresponds to the share percentage owned by the joint venture company.

The equity method

It deals with a synthetic consolidation method used in order to assess the profits earned by their investments in other companies that are bound to each other and controlled but not included in the consolidation area. Compared to the other two consolidation methods, the equity method does not include assets, liabilities and components of net profit in the financial statement, but makes some consolidation adjustments to reflect value changes due to the investor’s share in the company’s income or losses. The result of joint venture companies is presented in a single line of the income statement (among participation profits), whereas the pro-share value of joint venture companies’ assets is synthetically presented in “participations”. This method has the same effects of the other two methods on net assets and on the fiscal year result of the consolidated company.


Consolidated financial statements have many functions, but they basically play a key information role; indeed, they represent a primary tool in order to get access to data of the group (data on assets or on the economic and financial situation); these data can be useful for thirds, for partners and for management control, as they do not immediately emerge from single financial statements of companies belonging to the same group.

Consolidated financial statements do not simply represent an obligation, but they let stakeholder get access to complete and precise information related to the real profitability and capitalization of the group; in this case, the group is intended as a single unit, i.e. net of profits and losses deriving from operations carried out in the group itself (intercompany).

Consolidated financial statements are often required by banks in order to get or maintain loans and lines of credit, even when there is no statutory obligation.

Consolidated financial statements are public documents, but they have no legal force (i.e. they do not authorize the distribution of dividends that should be approved according to annual financial statements of each single company of the Group) and no fiscal value (only the option related to “tax consolidation regime”, pursuant to articles117-129 of the TUIR, allows a specific form of group taxation).