Finance: Advice line - Pesh Framjee on finance and governance

Q: We are preparing consolidated accounts. In the past we showed the income and expenditure of the trading subsidiary on two lines in the statement of financial activities. Is this all right?

No, I am afraid it is not. Financial Reporting Standard No. 2 sets out the manner in which consolidated financial statements are to be prepared.

FRS 2 defines consolidation as "the process of adjusting and combining financial information from the individual financial statements of a parent undertaking and its subsidiary undertakings to prepare consolidated financial statements that present financial information for the group as a single economic entity".

Clearly, the aim of consolidated accounts is to present group activities as "a single economic unit". Therefore it is appropriate to present the results on the basis of the activity rather than the entity that carries them out. Paragraphs 309 et al explain the method of consolidation that should be used:

"309. The normal rules will apply regarding the method of consolidation, which should be carried out on a line-by-line basis as set out in FRS 2.

"310. All items of incoming resources and resources expended should be shown gross after the removal of intra-group transactions. Clearly, it is desirable that similar items are treated in the same way. Similarly, costs of generating funds and/or administration costs in the subsidiary should be aggregated with those of the charity.

"311. Each charity should choose appropriate line headings within the permissible format of the statement of financial activities and suitable amalgamations of activities. The headings should be expanded and changed to reflect the underlying activities of the group."

- Pesh Framjee is head of the non profit unit at Deloitte and special advisor to the CFDG. No liability arises to the author, his firm or Third Sector. Send your questions to

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