Consolidated financial statements are a method of reporting finances in a specific scenario. These statements are primarily used by big companies that have multiple subsidiaries or divisions. When a particular company fully acquires another and claims ownership over it, a need to accurately report the assets, liabilities, expenses, and revenue of the new entity is created. Consolidated financial statements allow organizations to present their account balances as a single organization, instead of performing the task separately. These types of financial statements are needed to display, account for, and know information on a business in its entirety. By only looking at the figures and numbers of the parent company or its subsidiaries, the overall perspective can be lost in the process. They are mostly useful for the parent company, allowing it to benefit from the financial strengths of its subsidiaries.
While this also means that the losses suffered by the smaller company are shared by its parent, the method allows for more timely and accurate reporting. Using a consolidated statement is also effective in reducing the number of paperwork involved in reviewing the financial accounts of large organizations. The methods of creating a consolidated financial statement, however, are not perfectly suited for delivering an accurate overview. The biggest issue presented is that the revenues and expenses of subsidiaries are documented only after the time of acquisition. This means that the early reports cannot include the data from previous years, making the task of reviewing the overall picture much more difficult. This peculiarity means that the early consolidated reports are less accurate than the subsequent ones.