A CASE STUDY ON THE CONSOLIDATION OF FINANCIAL STATEMENTS OF ENTITIES AFFILIATED THROUGH DIRECT CONSOLIDATION PROCEDURE

The preparation of annual consolidated financial statements, in the context of the existence of group companies, represents a relatively new problematic issue for accounting practitioners, the world of the academia, as well as for the regulating bodies in the field of accounting. This situation generates intense debates among accounting specialists with the aim of finding practical solutions that facilitate the understanding and correct application of accounting regulations in the area of consolidating accounts. The present article approaches, by means of a case study, the specific aspects related to the consolidation of affiliated entities’ accounts by means of using the global integration method and the direct consolidation procedure.


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The drawing up of consolidated financial statements by means of the global integration method, irrespective of the employed procedure (consolidation on levels or direct consolidation) involves the cumulation of the items from the balance sheets and the profit and loss accounts of affiliated entities with the balance sheet items and the items of the profit and loss accounts of the parent company, as well as the making of the following adjustments: -the division of the subsidiaries' equity capital elements between the quota the parent company is entitled to and the quotas for "other shareholders" of the subsidiaries as "interests of minority shareholders"; -the accounting recording, as elements of consolidated equity capitals, of the quotas from the equity elements of the subsidiaries that are allocated to the parent company; -the separate accounting recording of the quota from the equities that are allocated to "other shareholders" of the subsidiaries as "interests of minority shareholders"; -the elimination of the equivalent value of shareholding titles owned by the parent company, directly or indirectly, from the consolidated subsidiaries and the diminishing of the equities of affiliated entities with an equivalent sum. We will further present a case study regarding the consolidation of financial statements of affiliated entities by means of the direct consolidation procedure, starting from the hypothesis that the group is composed of four companies, as follows: the parent company A and the subsidiaries B, C and D. The parent company A owns 70% of the capital and voting rights of company B. Company B owns 80% of the capital and voting rights of company C, and company C owns 90% of the capital and voting rights of company D.
In this study, we considered that all shareholding titles owned in subsidiaries B, C and D represent ordinary shares and were purchased when the respective companies were established. The study does not present the particularities of accounting treatments corresponding to the reciprocal operations among the companies of the group because they can be the subject of other approaches. Taking into account that the parent company has exclusive control over the subsidiaries, in order to carry out the consolidation of their financial statements we will employ the global integration method. We will further present the individual financial statements of the group companies that will be the subject of consolidation, as follows: a) Balance sheets of the companies that are part of the group: In order to draw up the consolidated financial statements by means of the direct consolidation procedure, the following stages will be taken into account:

STAGE 1
The establishment of the shareholders' interest percentage of the parent company (of the group) in each subsidiary, as well as of the interests of minority shareholders: * The elimination of shareholding titles in subsidiary C is done on the basis of shareholders' interest percentage owned by the mother company in subsidiary B (70%). *The elimination of shareholding titles in subsidiary D is performed on the basis of shareholders' interest percentage owned by the mother company in subsidiary C (56%).

Conclusions
The simple consultation of the individual financial statements of the companies that are part of the consolidation area of a group, presented cumulatively, does not allow us to create a real picture of the economic-financial situation of the group, taking into account that the reciprocal operations among the companies that are part of the group are not recorded and nor are their consequences. At the same time, the cumulated individual accounts do not provide a truthful image of equity capitals, including the financial results that belong to the shareholders of the parent company, as distinct from the part that is attributed to other "other shareholders" as "interests of minority shareholders" (shareholders of other companies than the parent company or its affiliated entities).
The necessity of approaching, by means of a case study, the applicative nature regarding the use of the direct consolidation procedure for the individual financial statements of companies that form a group seems all the more imperative given that the accounting theory and practice do not abound in effective solutions for the application of accounting regulations concerning the preparation of consolidated financial -Cash and bank accounts 310,000 C. Advance expenses D. Current debts -sums that must be paid in less than a year 630,000 statements. This is why we consider that our study can represent a useful guide for accounting practitioners as well as for students in economics that study accounting. Confident that the accounting theory and practice can be permanently improved, I am eager to receive proposals or suggestions regarding the problematics approached in the current article.