The consolidation is a key step in the preparation of group financial statements. It allows large companies to present the financial situation of the group as a whole, in a standardized and homogeneous manner, after eliminating internal transactions. In this article, we will first review the legal basis governing the consolidation of accounts. We describe also the main steps to be followed to prepare a consolidation.
Legal basis in Switzerland
The legal basis for the preparation of consolidated financial statements in Switzerland comes mainly from the Code of Obligations, Articles 963 to 963b. The main provisions can be summarized as follows :
Consolidation requirement : A legal entity is required to prepare consolidated accounts if it controls one or more companies.
Exemption from consolidation : A legal entity is exempt from preparing consolidated accounts under certain conditions, amongst others :
- Si elle et les entreprises qu’elle contrôle ne dépassent pas certains critères de taille (deux critères durant deux exercices successifs) :
- CHF 20 million total balance sheet,
- CHF 40 million total revenue,
- 250 full-time employees.
- If the legal entity is controlled by a company whose consolidated accounts are prepared in accordance with Swiss law or an equivalent foreign law and are subject to an ordinary audit.
Recognized accounting standards : Recognized accounting standards (such as Swiss GAAP FER, IFRS or US GAAP) must be applied in certain cases, particularly when the company’s shares are listed on a stock exchange and the stock exchange requires it. For other groups, consolidated accounts may be prepared following the principle of regularity and with the evaluation rules applied explained in the notes.
Main steps in a consolidation
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Definition of the consolidation scope : The first step in consolidation is defining the consolidation scope. This involves establishing a list of legal entities that must be consolidated. Both directly and indirectly held entities must be taken into account.
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Decision regarding the consolidation tool : Significant attention should be paid to the choice of a consolidation tool. For smaller groups, consolidation using Excel may be considered. A consolidation tool (such as SAP SEM-BCS; SAP Group Reporting) is often used for larger groups.
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Accounting standards and consolidation manual : As mentioned earlier, some groups must apply recognized accounting standards (such as Swiss GAAP FER, IFRS or US GAAP), while others have the option to apply evaluation principles based on the framework defined by the Code of Obligations. In all cases, it is essential to establish specific evaluation rules applicable to the entire group. These are usually described in a consolidation manual. Applying predefined group-level rules enables the preparation of consolidated accounts with homogeneous principles.
- Elimination des opérations internes au groupe : Une étape importante de la consolidation consiste à éliminer les transactions et les balances internes au groupe. Cette étape est primordiale afin de présenter le groupe sans tenir compte des opérations qui se sont passées entre sociétés du périmètre de consolidation. Ces éliminations sont de natures diverses :
- Income statement : purchases/sales, management fees, interest, etc.
- Balance sheet : accounts receivables/accounts payables, loans, etc.
- Others : dividends, fixed asset transfers, etc.
- Méthode de consolidation : Il existe plusieurs méthodes de consolidation, les principales étant les suivantes :
- Full consolidation : For entities owned at more than 50%, full consolidation is usually applied.
- Equity method : For entities owned between 20% and 50%, the equity method is usually applied.
Additional Information
We are at your disposal for any further information. If you need help for the consolidation, don’t hesitate to contact us and we will be pleased to analyze your situation together. Contact us: https://www.gaapex.ch/contact/
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