But in reality, the parent company controls the subsidiary, so it no longer operates completely independently.
Because the parent company now fully controls the subsidiary, by accounting rules, the parent company must present its subsidiary’s and its own financial operations in a consolidated manner (even though the two companies may be separate legal entities).
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IAS 27 Consolidated and Separate Financial Statements outlines when an entity must consolidate another entity, how to account for a change in ownership interest, how to prepare separate financial statements, and related disclosures.
If you hold a minority interest in the subsidiary of a parent company, the consolidated financial statement won’t give you the information you need to make decisions about your holdings.A subsidiary with minority shareholders must report its financial results separately from its parent company’s in addition to having its report included in the consolidated financial statements.When a company owns all the common stock of its subsidiaries, the company doesn’t really need to publish reports about its subsidiaries’ individual results for the general public to peruse.Financial reporting is much more complex for individuals and companies that hold a majority stake in more than one business.Not only must individual financial statements be prepared but the Financial Accounting Standards Board also requires the reporting of consolidated financial statements at regular intervals as well.
When one company owns part or all of another company, it must account for this ownership interest in the other company.