What Is Consolidation? Multi-Entity Accounting Explained

Consolidation combines the financial statements of a parent company and its subsidiaries into one set of accounts presenting the group as a single economic entity. The legal reality is five companies; the consolidated statements show the business those five companies actually are.

It is required across the EU under the Accounting Directive once a parent controls other undertakings and exceeds size thresholds — and it is far more than adding the columns together.

The three methods

How a group member is consolidated depends on how much control the parent has:

Method	When	Treatment
Full consolidation	Control, normally >50%	100% of assets, liabilities, income and expenses combined — even at 60% ownership
Proportional	Joint control	The parent's share of each line
Equity method	Significant influence, typically 20–50%	Not combined at all — a single investment line, plus the share of results

The full-consolidation rule surprises people: a 60%-owned subsidiary contributes all of its revenue and all of its assets, not 60%. Control, not ownership percentage, decides consolidation. The 40% belonging to others is then shown separately as non-controlling interest.

Non-controlling interests

If the parent owns 80% of a subsidiary that earned 5,000 € and has 55,000 € of net equity, the group's statements include 100% of both — and then disclose that 20% belongs to somebody else:

• NCI in equity: 20% × 55,000 = 11,000 €
• NCI in the result: 20% × 5,000 = 1,000 €

The reader sees the whole business the group controls, and how much of it the parent's shareholders actually own.

Currency translation

Members reporting in different currencies must be translated into the group's presentation currency. The standard approach translates assets and liabilities at the closing rate, and income and expenses at transaction or average rates — which necessarily produces a translation difference, recognized in equity rather than profit.

A subsidiary reporting in USD with the group presenting in EUR at a closing rate of 1.10 USD/EUR contributes its figures divided by 1.10. A 10,000 USD result becomes 9,090.91 EUR. The rate moving next year changes the contribution without anything happening in the subsidiary — which is why the translation factor should be visible in the output rather than buried, and why it is distinct from the transaction-level FX differences inside each company's own books.

Eliminations — the part that makes it consolidation

Adding statements together double-counts everything the group did with itself. If A sells 10,000 € of services to B, group revenue rises by 10,000 € and group expenses by 10,000 € — with no external customer anywhere. The group has sold nothing.

Eliminations remove these internal transactions:

• Intercompany revenue and expenses — sales between members
• Intercompany receivables and payables — A's receivable is B's payable; both vanish
• Unrealized profit in inventory — goods sold within the group at a margin and still unsold at period end carry profit that has not been earned externally
• The parent's investment against the subsidiary's equity

Eliminations are the reason a consolidation cannot be done by a spreadsheet sum, and the reason intercompany reconciliation matters: you cannot eliminate what the two sides record differently. If A booked 10,000 € and B booked 9,800 €, the 200 € difference has to be explained before it can be removed.

How Nordlet implements it

Consolidation is a group of companies, defined once and computed on demand.

A consolidation group holds a presentation currency and its members, each with an ownership percentage and a method — full, proportional or equity. Adding a member is gated: a company can only be consolidated if it shares an administrator with the group owner, so cross-company access is never implicit.

POST /v1/consolidation/report { groupId, fromDate, toDate, category } returns the consolidated result:

• Balance sheet and profit and loss, assembled in the statutory layout for the size category
• Consolidated cash flow, with each member's direct-method statement translated and weighted by method, and equity-method associates excluded
• Non-controlling interest in both equity and result
• Equity-method figures — investments in associates and share of their results
• Per-member contributions with the FX factor, rate pair, total assets, net equity and period result, so any figure can be traced to the member that produced it

Intercompany automation runs alongside. Partners that look like other group members are surfaced as candidates, and confirming a link in both directions turns on mirroring: issuing a sale invoice to a linked partner automatically creates the matching draft purchase invoice in the counterparty company. /v1/consolidation/intercompany/report then reconciles both sides per direction — mirrored, matched by document number, or missing — with per-currency totals and open AR/AP differences.

The honest boundary: eliminations are still entered manually on the report as account-code adjustments. They are now backed by the reconciled intercompany figures rather than guesswork, but the system does not derive the elimination postings itself — deriving the counterparty's account codes reliably needs analysis of how each side posted, and inventing them would be worse than asking.

FAQ

What is consolidation in accounting?

Combining the financial statements of a parent and its subsidiaries into one set of accounts presenting the group as a single economic entity — with internal transactions eliminated so only dealings with the outside world remain.

When is consolidation required?

Under the EU Accounting Directive, when a parent controls other undertakings and the group exceeds national size thresholds. Smaller groups are often exempt, and thresholds vary by member state.

Why is a 60%-owned subsidiary consolidated at 100%?

Because consolidation follows control, not ownership. The parent controls all of the subsidiary's assets and operations, so all of them are presented — with the 40% not owned by the parent's shareholders disclosed separately as non-controlling interest.

What are intercompany eliminations?

Removals of transactions between group members — internal sales, mutual receivables and payables, and unrealized profit on goods still held within the group. Without them, the group would report revenue and assets it created by trading with itself.

What is the equity method?

The treatment for investments with significant influence but not control, typically 20–50%. The investee is not combined line by line; instead the group shows a single investment balance and its share of the investee's result.