The rules concerning group reporting are well-established, set out in the Companies Act 2006. Yet they are complex, and it is not uncommon for groups of companies to question the need for individual or consolidated accounts.
Here, we explain when a group of companies will need consolidated accounts and why they might choose to opt for consolidated accounts when not legally required to do so.
UK parent companies
A company registered in the UK and with one or more wholly owned subsidiaries, including overseas subsidiaries, will fall into the group reporting requirements once the combined size of the group reaches the audit threshold, being the small companies’ limits.
It is important to note that audit thresholds will change on the 1st October 2024, you can read more on changes to audit thresholds here.
Group reporting requirements mean that the parent company will need to prepare and file consolidated accounts for the group.
There are some notable exceptions. Consolidated accounts may not be necessary if the UK parent company is itself a subsidiary or an investment entity. The rules surrounding these exemptions are tightly defined and it will be necessary to take advice before relying on them.
Businesses that are looking to make one or more acquisitions will need to keep a close eye on reporting thresholds and reporting requirements, particularly if any acquisition were to push it over the audit thresholds.
Choose consolidated accounts
There are sometimes very good reasons for a business to choose consolidated accounts despite not being legally required.
Where multiple subsidiaries exist with each meeting audit thresholds, consolidated accounts can provide significant cost savings, due to certain exemptions available to UK groups. Why, for example, pay audit fees for three subsidiaries where just one would be required when consolidated?
Businesses that expect to grow through acquisition can find the discipline of consolidated reporting a helpful step towards future requirements. It can be considered future-proofing the business to meet anticipated reporting requirements.
Finally, consolidated accounts can help the various stakeholders in business better understand the group’s overall financial performance of the organisation.
Hillier Hopkins brings considerable strengths and expertise in advising businesses on their current and future reporting requirements and in the preparation of consolidated accounts.
