Due to some directors’ lack of understanding on consolidated financial reports, as the chief accountant for Woolly Ltd, I am here to present a report in order to demonstrate the purpose of preparing consolidated financial reports and why it is significant to have these consolidated reports to users. In general, consolidated financial reports are the combined financial statements of a parent company and its subsidiaries. Since Woolly Ltd is the parent company of Jumper Ltd, these two entities are supposed to be regarded as one single entity. Thus, a separate financial statement seems necessary for the entity and its shareholders.
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1. Definition
As the definition in AASB 10, the consolidated financial reports are ‘the financial …show more content…
To make it more specific, there are 4 purpose of setting up consolidated financial statements (Leo, Knapp, McGowan & Sweeting, 2015). First of all, consolidated financial statements supplies information that is relevant to the Woolly’s (the parents entity’s) investors and those who have interests in the whole group. Besides, the reports also provide users with comparable information. Owing to the fact that some entities have their members in the group conduct different financial activities, while others may have all activities undertaken within one entity, investors may be confused if they see all the reports separately. To avoid this situation, the consolidated financial statements make the comparative analysis an easier task. Moreover, the essential purpose of the consolidated financial reports is the accountability discharge. Since the parent company is not just take charge of its own management of assets and liability, but also needs to control its subsidiaries’, the consolidated financial statements make the management showed more clearly. And the last reason why it is necessary for the entity to have consolidated financial reports is that this report will present users with the risks and benefits now associated with the