So there should only be two reasons to read this article. The first is you’re battling to sleep and you’re tired of counting sheep. The second is it's your job to get your group’s consolidation out. On-time. Without errors.
So we made a list of the top five consolidation mistakes you can avoid when preparing your group’s financial consolidation.
1. Not allocating FCTR (foreign currency translation reserve) to NCI (non-controlling interests)
Think of FCTR as a reserve account just like retained earnings, revaluation reserves and share capital. It too needs to be split between the parent and the minority shareholders (NCI). So remember to apportion the FCTR that arises on consolidation due to foreign exchange differences to NCI as well.
2. Converting a foreign subsidiary’s share capital at the closing spot rate
Share capital is one of those “special” accounts that get converted at the actual rate that the equity was raised. Any difference between that and the spot rate when you’re reporting needs to be allocated to FCTR. And a portion of that to NCI (see point 1).
3. Allocating proforma eliminating journals relating to intercompany transactions to NCI
Here’s your chance to give the poor minorities a break. Being a minority shareholder is hard enough as it is. Remember, consolidating your partially held subsidiaries has got nothing to do with what is owed to the minorities. They quite frankly shouldn’t get involved when eliminating your intercompany sales and purchases with other group companies.
4. Not fair valuing assets and liabilities when subsidiaries are acquired
A common scenario we see very often are subsidiaries that get acquired and then the paperwork is given to the accountant 6 months later. It gets exponentially more difficult trying to fair value assets and liabilities with every passing day post-acquisition. So keep your ear to the ground and insist on getting this done asap after an acquisition is made. Oh, and dust off that IFRS 3 standard lying on the bookshelf there.
5. Completely missing intercompany transactions and balances
If you’ve made it this far, well done. I’m finishing with an easy one but one we see just as often as the others. If you’re the group accountant, insist that your group adopts accounts that are dedicated intercompany accounts for keeping track. Not only will this make your consolidation easier but you’ll save time during month-end as well.
Finally, if you’ve already got these bullets covered, well done! If you’re a little concerned about what you’ve just read and think there may be some room for improvement, that’s great too. And if you’re really confused about what you’ve just read give us a call. We’ll help get your console sorted in no time.