Consolidation Reporting Exemptions in Financial Statements

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| Courtney Price

Consolidation is a significant exercise that involves combining the financial statements of a parent company and its subsidiaries. However, certain exemptions can relieve companies from this extensive task. These exemptions, as detailed in Financial Reporting - Key Issues in 2023 with Lindsay Webber, include the small group exemption and the inclusion in larger consolidation.

The requirements for exemption come from FRS 102 (S9.2) and the Companies Act 2006 (s299). Basically, all parents need to consolidate their financial statements – unless they’re able to avail of an exemption. These exemptions are:

1. Small Group Exemption:

The most widely used exemption is the small group exemption, as per section 399 (2A). This exemption applies when all entities within a group are eligible, meaning none of them are traded companies, bodies corporate carrying out regulated activities, e-money issuers, authorised insurance companies, banking companies, investment companies, UCITS management companies, or any person who carries on insurance market activity or is a scheme funder of a master trust scheme. If any member of the group falls into these categories, the group cannot avail of the small group exemption and must consolidate their financial statements.

2. Inclusion in Larger Consolidation (S400, 401):

The second exemption comes into play when a parent company is included in a larger consolidation. Often, groups have a holding company and a mid-level holding company, followed by a subsidiary. The mid-level holding company can take advantage of this exemption as they're included in the consolidation above. This exemption is applicable regardless of whether the parent company is based in the UK or outside, with the only requirement being the use of the correct reference in the financial statements.

3. All Subsidiaries are Excluded from Consolidation (s402):

The final exemption allows for the exclusion of immaterial subsidiaries from consolidation. For instance, if a holding company has two subsidiaries that are dormant or have very little trade going on, and they're immaterial to the holding company and the group, they don't need to be consolidated. However, it's crucial to note that multiple subsidiaries claimed as immaterial must be immaterial in aggregate. If the combined subsidiaries become material to the group, they can no longer be excluded from consolidation.

While consolidation is a requirement under FRS 102 and the Companies Act, these exemptions provide some relief for certain companies. However, if a company cannot avail of any of these exemptions, it must draft consolidated financial statements. Understanding these exemptions can help companies navigate their financial reporting obligations more efficiently.

To watch the full session, please click here. Lindsay Webber covers the following topics during this course:

  • FRED 82 – a brief overview of upcoming changes to FRS 102 and FRS 105
  • Investment properties
  • Fair value and expert reports
  • Consolidation reporting exemptions
  • Revenue – when is a company acting as an agent?

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.

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About the Author

Courtney Price is a content creator for CPDStore UK. Courtney joined us during the COVID-19 pandemic and has been involved in the ever-evolving world of accounting ever since. Her passion for reading and writing, coupled with her degree in copywriting from Vega School has allowed her to channel her creativity and expertise into crafting engaging and informative content.


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