Preparing Consolidated Financial Statements: Requirements and Examples

When a business operates multiple entities—whether across Free Zones, onshore locations, or international markets—tracking financial performance can quickly become complex. Relying on separate financial reports from each subsidiary often leads to fragmented data and a lack of visibility into the group’s overall financial health. This is where consolidated financial statements play a critical role.

In the United Arab Emirates (UAE), where businesses often span across various jurisdictions and corporate structures, consolidated financial reporting is not only a tool for better decision-making but is also increasingly important for maintaining regulatory compliance, supporting financing applications, and managing VAT group obligations. Listed companies in the UAE are legally required to prepare consolidated financial statements under International Financial Reporting Standards (IFRS), while large private groups frequently adopt similar practices to satisfy banks, investors, and Free Zone authorities.

This blog will explain what consolidated financial statements are, why they’re essential—especially in the UAE business environment—and provide a clear, step-by-step guide to preparing them. Whether you're a finance professional, business owner, or part of a multi-entity group, this comprehensive overview will help you understand how to approach consolidated reporting with accuracy and compliance. Let’s get started!

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Understanding the Purpose and Scope of Consolidated Financial Statements

Consolidated financial statements are reports that combine the financial data of a parent company and its subsidiaries, giving a 360-degree view of the entire group's finances as a single entity. 

Making a financial report isn’t difficult, but running a business with multiple entities can make it difficult to understand the net profit or income if all the financial statements are made separately for each entity. 

Financial consolidation eliminates these redundancies, adjusts non-controlling interests, and gives a comprehensive view of a company’s financial status. 

Generally, consolidated financial statement reports include three major components: 

• Consolidated income statements: Summarise the entire business's revenue, net income, and expenses. 
• Balance sheets: Provide insights into the company’s assets and liabilities. 
• Cash flow statements: Provide detailed data on cash inflows and outflows during a specific period. 

The main goal of consolidating finances is to provide stakeholders with a clear understanding of how the company is performing as a whole. 

However, it's important to note that private companies don’t have any guidelines regarding consolidated financial statements, but public companies must follow  IFRS guidelines.  

Plus, the criteria for filing a consolidated financial statement is based on the amount of ownership the parent company has in the subsidiary. If a company does not report its subsidiaries, it usually accounts for their ownership through the cost method or the equity method.

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What Are The Cost and Equity Methods?

Cost and equity methods are two different accounting techniques used to prepare consolidated financial statements for investments in subsidiaries or affiliated companies. Here’s a detailed explanation of both the methods: 

Cost Method: 

The cost method is used when the parent company has little control over the subsidiary and a small investment (typically less than 20%) in another business. Under this method,  the investment is first recorded at cost, and income is only recognised when dividends are paid out. The investment is not adjusted for the investee company's share of profits or losses.

Equity Method: 

The equity method is employed when the parent company has substantial control over the subsidiary—usually when it holds 20% to 50% of the voting stock in the subsidiary. The parent records a portion of the investee's gains or losses on its income statement using this method. The carrying amount of the investment is adjusted according to the parent's proportionate share of the subsidiary’s net income or loss, and any dividends received reduce the asset's carrying value.

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What Are The Benefits of Consolidated Financial Statements? 

The main purpose of the consolidated financial statement is to have an accurate picture of the business group’s financial position, including its assets, expenses, profits, and equity. The list of benefits of preparing consolidated financial statements are: 

• It improves transparency by eliminating internal transactions, ensuring stakeholders truly understand the company’s financial position.
• It simplifies management decision-making, allows for a more efficient evaluation of the group’s financial health, and helps identify areas for improvement.
• Improves finance reporting for stakeholders by offering a single, unified report that reflects the combined financial standing of the parent and its subsidiaries.
• Maintains compliance with regulatory requirements by sticking to accounting frameworks such as IFRS.
• Allows easier financial comparisons across periods or with industry benchmarks, highlighting trends and performance changes.
• Optimises resource allocation by providing a group-level perspective, helping identify areas for operational efficiencies or cost-saving opportunities.
• Consolidated reports help manage intercompany VAT liabilities effectively, especially for Free Zone businesses and holding structures.

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Steps To Prepare Consolidated Financial Statements

The process of preparing consolidated financial statements involves many steps to guarantee compliance and accuracy. Here’s a step-by-step guide on preparing consolidated financial statements. 

1. Organise finances across all entities.

To make the entire financial reporting process easier, start by following good finance and accounting practices. By following best accounting practices, your financial data will always be clean, accurate, and easily available for reporting. 

Using a spend management system here can make a big difference. Financial data accuracy can be maintained properly by integrating tech-enabled corporate cards to track spending and finding out techniques to automate the expense entries into the company's general ledger (GL) to cut down on human error. 

2. Identify the Parent-Subsidiary Relationship

Organising finances is the basic step in preparing consolidated statements. The next step is to identify the entities that should be included in the consolidated financial statements.

The parent company should have the authority to control the subsidiary's financial and operational policies or hold more than 50% of the voting shares.

3. Collect Financial Statements

The next step is to collect financial statements from each subsidiary. Collect the balance sheet, income statement, and cash flow statement for each subsidiary as well as the parent company's individual financial statements. Remember, these statements must be aligned on the basis of the reporting period and accounting standards to maintain consistency. 

4. Eliminate Intra-Group Transactions

One major step is eliminating intercompany transactions. Eliminate all parent-subsidiary transactions, including dividends, loans, and intercompany sales. These transactions are not relevant for the consolidated financials, as they would distort the financial picture if included.

For instance, a transaction involving the sale of goods from one subsidiary to another must be excluded from the consolidated reports to prevent overstating revenues or expenses.

5. Adjust for Unrealised Profits and Losses

Adjustments for non-controlling interests must be made when the parent company owns less than 100% of a subsidiary. If applicable, adjust the subsidiary's liabilities and assets to their fair value on the acquisition date. It is also necessary to document any goodwill (or gain on a bargain purchase) that results from the subsidiary's acquisition. While the portion that belongs to external shareholders is reported separately, these adjustments guarantee that the consolidated financial statements accurately reflect the ownership equity of the parent company.

6. Calculate Goodwill

The difference between the parent company's purchase price and the identifiable assets and liabilities of the subsidiary at the acquisition date is known as goodwill. It is calculated when a parent company buys a subsidiary for more than the net asset value of the subsidiary. 

Formula for calculating Goodwill: 

Goodwill = Purchase Price – (Fair Value of Identifiable Assets – Liabilities)

Let's say a parent company pays $1,000,000 to purchase a subsidiary. The subsidiary's identifiable assets are worth $800,000, while its liabilities are worth $300,000. The goodwill is computed as follows:

Goodwill = $1,000,000 (purchase price) – ($800,000 (assets) – $300,000 (liabilities))

Goodwill = $1,000,000 – $500,000

Goodwill = $500,000 This goodwill is listed as an intangible asset in the consolidated balance sheet.

7. Combine the Financial Statements

After all adjustments have been made, the financial information from every subsidiary is combined into a single, linked consolidated financial report. This involves combining comparable line items from the parent and subsidiary financials, such as assets, liabilities, revenues, and expenses. The cash flow statement, balance sheet, and consolidated income statement should all be included in this report. The goal is to present an accurate and comprehensive detail of the business's overall financial situation. 

8. Review and Finalise

Confirm the legitimacy of the consolidated financial statements by verifying that all cross-company transactions have been appropriately eliminated and that adjustments such as goodwill and non-controlling interest have been properly recorded. Once verified, the statements are ready for presentation.

Moreover, consolidating finances is a continuous process. Companies are required to update their consolidated financial statements on a regular basis to reflect any changes in their subsidiaries or entities. This covers mergers, acquisitions, and structural adjustments that impact financial control or ownership.

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The Challenges of Using Manual Processes to Consolidate Financial Statements

Consolidating financial statements manually can lead to a number of challenges that affect the accuracy, timeliness, and efficiency of the process. Here are some of the main issues businesses face: 

• Time-Consuming: Gathering and combining data from multiple subsidiaries manually takes significant time, delaying reporting.
• Error-Prone: Manual data entry increases the risk of mistakes, such as incorrect calculations or misplacing figures.
• Lack of Real-Time Data: Manual processes rely on outdated data, affecting the accuracy and timeliness of the reports.
• Limited Scalability: As businesses grow, manual consolidation becomes more difficult and resource-intensive.
• Difficulty with Complex Transactions: Mergers, acquisitions, and changes in ownership percentages are hard to manage manually.
• Inconsistent Data: Differences in accounting practices and reporting formats across subsidiaries create challenges in consolidation.
• Higher Costs: More resources are required for manual consolidation, increasing operational costs.
• Meeting Deadlines: It becomes challenging to meet tight regulatory deadlines with manual processes.
• Auditing Challenges: Tracking changes and verifying data manually is difficult, impacting transparency and accuracy.

For these reasons, many businesses are turning to automation and expert financial consolidation software. These tools simplify the process, reduce the risk of errors, and improve the speed and accuracy of consolidated financial statements. One such tool is Alaan. 

Also Read: What is finance automation?

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Simplify Corporate Spend Management with Alaan

Consolidating financial statements requires reliable, consistent, and timely financial data — and corporate spend is a key part of this picture. In multi-entity businesses, managing expenses across subsidiaries can be messy, time-consuming, and prone to errors.

This is where Alaan adds value.
Alaan is a UAE-based corporate spend management platform that offers businesses the ability to:

• Issue multi-currency physical and virtual corporate cards to employees across entities
• Control and track business spending in real-time
• Automate expense capture and reconciliation
• Integrate seamlessly with accounting systems like Xero and QuickBooks

While Alaan is not a financial consolidation software, it supports businesses by ensuring clean, categorised, and real-time expense data at the entity level. This improves financial accuracy and reporting efficiency, which indirectly contributes to the quality and timeliness of consolidated financial reports.

By centralising expense management:

• Finance teams spend less time chasing receipts and correcting errors
• Subsidiary-level spend data is always up-to-date and ready for integration into accounting and reporting systems
• Oversight and governance improve with real-time spend visibility

This ultimately helps finance leaders make better-informed decisions and maintain accurate subsidiary records — a crucial foundation for reliable consolidated financial reporting.

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Conclusion

Preparing consolidated financial statements is an essential process for any business group with multiple entities, especially in regions like the UAE where corporate structures often involve a parent company and several subsidiaries across different sectors and jurisdictions. By providing a unified view of the financial health of the entire group, consolidated financial statements help business owners, investors, and stakeholders make informed, strategic decisions.

Whether it’s eliminating intercompany transactions, calculating goodwill, or adjusting for non-controlling interests, a thorough and well-structured consolidation process ensures that the financial statements accurately reflect the group’s true financial position.
It also ensures compliance with IFRS and other applicable regulatory frameworks — crucial for publicly listed companies and large enterprises operating in the UAE’s increasingly transparent business environment.

While full financial consolidation involves sophisticated accounting processes and specialised tools, businesses can start improving the quality and reliability of their financial data at the operational level, especially in areas like corporate spending.

Enhance Spend Visibility and Control Across Your Group with Alaan

If your business operates across multiple subsidiaries in the UAE, managing expenses effectively is vital to maintaining clean, reliable financial data for reporting and consolidation.
Alaan’s corporate spend management platform gives you real-time control over expenses, centralises spend data across entities, and ensures seamless integration with your accounting systems.

Book a demo with Alaan today and discover how better spend management can strengthen your financial operations.