How Startups Prepare Clear and Accurate Consolidated Financial Statements

As soon as your startup has more than one entity with a parent company, a subsidiary, a holding company, or a new unit in another market, your financial story stops being simple. Each entity has its own assets, expenses, revenue, and obligations. Looking at them separately may tell you how each one is performing, but it does not tell you how the entire group is doing as a whole.

This is where consolidated financial statements become important. They combine all entities under your control into one set of statements, giving investors, lenders, and leadership a complete view of the group’s financial health. For founders growing across borders, this is often the difference between scattered numbers and a single, clear financial picture that can support fundraising, audits, and expansion decisions.

This guide explains what consolidated statements are, when you need them, how they work in practice, and how platforms like Inkle make the process faster and easier for global startups.

What Is a Consolidated Financial Statement?

A consolidated financial statement is a single set of reports that shows the combined assets, liabilities, equity, revenue, expenses, and cash flows of a parent company and all its subsidiaries. Instead of treating each entity separately, it presents the entire group as one business with one financial position.

For founders, this helps create a clear picture of how the group is performing as a whole. Investors and lenders often look for this because standalone statements do not reveal the full scale or health of a growing startup group.

• A consolidated statement removes internal transactions between group entities so the numbers reflect real business activity.
• The financial position of the entire group becomes easier to understand because everything appears in one place.
• Growth across countries or units becomes more visible because revenue and expenses are shown as a combined result.
• Founders get one clear view of the group’s performance, which helps during fundraising, audits, and expansion plans.

When Startups Must Prepare Consolidated Financial Statements

A startup is required to prepare consolidated financial statements when it controls one or more subsidiaries. Control usually means the parent has the ability to direct the financial and operating decisions of the subsidiary, either through ownership or voting rights. Once this control exists, separate statements no longer reflect the full financial position of the group.

Before getting into the details, here is a simple table that shows how different standards define and handle control:

Different accounting frameworks express control differently, but the core idea remains the same: if your startup can influence another entity’s operations and benefits from its results, both must be presented together as one group.

• Under global standards such as IFRS 10, control exists when a parent has power over the subsidiary, exposure to variable returns, and the ability to influence those returns.
• Under AS 21, control is determined by voting power or the ability to control the board.
• Under AS 21, the Companies Act 2013 mandates that all companies with subsidiaries must prepare consolidated financial statements.

Early-stage startups often go for consolidation when they set up an operating subsidiary abroad, receive investment through a holding company, or restructure ownership for global expansion. 

Cases Where a Subsidiary Is Not Included in Consolidation

Most subsidiaries are included in consolidated financial statements, but certain situations allow an entity to be left out. These cases are rare, yet important for founders to know because they affect how the group’s final financial picture is presented.

1. Temporary Control

A subsidiary is excluded when the parent holds it only for a short period and intends to sell it soon. In this case, consolidation would not reflect the long-term structure of the group, so the entity is kept separate until it is disposed of.

2. Severe Long-Term Restrictions

A subsidiary is not consolidated when significant restrictions prevent it from moving funds to the parent. If the parent cannot access or direct the subsidiary’s resources, combining the numbers would not give a fair view of the group’s position.

3. Required Disclosures When a Subsidiary Is Excluded

Any exclusion must be clearly explained in the notes. The parent must disclose the name of the subsidiary, the reason for exclusion, and how the exclusion affects the group’s financial results.

How the Consolidation Process Works Within a Startup’s Finance System

The consolidation process brings the parent and its subsidiaries into one clear set of financial statements. For founders, this is the step that turns scattered numbers across entities into a single, reliable financial story. The process is structured, but not complicated when broken down into simple steps.

Step 1: Combine Parent and Subsidiary Statements Line by Line

The parent and each subsidiary prepare their own financial statements first. These statements are then aligned and added together line by line so assets, liabilities, income, and expenses appear as if they belong to one group.

Step 2: Offset the Parent’s Investment Against the Subsidiary’s Equity

The parent’s investment in a subsidiary cannot be shown again in the group’s financial position. To avoid double counting, the investment amount is matched with the subsidiary’s equity and removed from the combined statements.

Step 3: Remove Intra-Group Transactions and Balances

Any transactions that happened within the group must be removed. This includes internal sales, loans, receivables, payables, dividends, or interest. Removing these entries ensures that only real external business activity appears in the consolidated statements.

Step 4: Eliminate Unrealised Profits on Internal Transfers

If one entity sells goods or services to another at a profit, that profit must be removed until it is realised outside the group. This prevents overstating income and assets.

Step 5: Present Non-Controlling Interests Separately

If the parent owns less than 100 percent of a subsidiary, the portion belonging to other shareholders appears as non-controlling interest. Under Ind AS and IFRS, this is shown within equity. Under AS 21, it may appear separately from equity and liabilities.

Step 6: Reflect Income Tax at the Group Level

Tax expenses and deferred taxes are adjusted so the consolidated statements show the group’s true tax position, not the separate tax positions of each entity.

Step 7: Prepare the Final Consolidated Reports

The end result includes a consolidated balance sheet, income statement, cash flow statement, and statement of changes in equity. These reports give a complete view of the group’s financial performance and position.

How Inkle Helps Startups Prepare Clean and Timely Consolidated Financial Statements

Inkle brings together financial data from all your entities and organises it into one system, which removes the confusion of scattered files or mismatched formats. Each entity’s chart of accounts is aligned automatically, and intra-group entries are matched and removed, so you do not spend time fixing errors or reconciling internal balances. Currency translation happens in the background, allowing each entity’s records to flow into one consistent structure that is ready for reporting.

Once the group data is cleaned, structured, and aligned, Inkle generates consolidated reports that reflect the full financial position of your startup group. This makes board updates, audits, and fundraising much smoother because you have one complete set of statements instead of several disconnected financials. The process reduces manual work for your finance team and gives founders a clear view of the entire group without relying on spreadsheets or heavy accounting tools.

Book a demo with our team to see how Inkle streamlines consolidation for growing startup groups.

Frequently Asked Questions

How are consolidated financial statements different from standalone statements?

Standalone statements show only the numbers of the parent company. Consolidated statements combine the parent and all its subsidiaries into one complete set of financials.

What is the difference between consolidated and combined financial statements?

Combined statements place several related entities side by side without merging them. Consolidated statements treat the group as one business and remove internal transactions.

How are intra-group transactions handled?

Internal sales, balances, dividends, loans, and unrealised profits are removed during consolidation. This prevents double counting and keeps the group’s numbers accurate.

How are investments in subsidiaries shown in the parent’s separate statements?

In separate financial statements, investments are recorded under AS 13. The parent does not perform consolidation in its standalone records.

How are non-controlling interests presented?

Under Ind AS and IFRS, non-controlling interests appear within equity. Under AS 21, they may appear separately from both equity and liabilities.

What disclosures does AS 21 require?

Companies must disclose the list of subsidiaries, reasons for any exclusions, the extent of ownership, voting power, and information on differing accounting policies when uniform policies are impracticable.

How do automation tools help with consolidation?

Automation platforms collect data from each entity, align charts of accounts, remove intra-group items, handle currency translation, and generate consolidated reports with fewer manual steps.