Consolidation
Successful businesses commonly encounter opportunities to grow through acquisitions – by buying up competitors or other businesses. When your business acquires a controlling stake in another, accounting rules require you to consolidate your financial statements. This is the case regardless of whether you absorb the new company or leave it operating as a separate business.
BDO can help if you need assistance in:
- Accounting for business combinations and transactions involving subsidiaries and associates
- Gathering the data required for consolidation from group entities
- Designing the group reporting required for consolidation purposes
Estonian legislation defines a consolidating entity as a parent or any other accounting entity that has control of another accounting entity (consolidated entity). Control is presumed to exist when the parent or other accounting entity:
- Owns more than 50% of the voting power of an entity
- Has the right arising from the law or a contract to appoint or remove the majority of the members of the executive management or a higher governing body (by exercising the rights of a founder or by the decision of the general meeting)
However, in certain circumstances consolidating entities are not required to prepare consolidated financial statements.
Exceptions:
A company that is an Estonian or EU publicly traded company |
Public interest entity (Auditors Activities Act § 13), excl. a company that is an Estonian or EU publicly traded company |
Other consolidating entities |
The total amount of the balance sheet totals of each of the consolidated entities added together does not exceed 5 per cent of the balance sheet total of the consolidating entity and its sales revenue does not exceed 5 per cent of the sales revenue of the consolidating entity
|
|
Shares belong to an entity of a Contracting State who prepares and discloses the consolidated and audited annual report |
|
At least 90 per cent of the shares belong to an entity of a Contracting State, who prepares and discloses the consolidated and audited report |
|
|
Consolidated indicators (with mutual transactions) does not exceed the balance sheet total and net turnover indicators of a small consolidation group, plus 20% |
|
|
Consolidated indicators do not exceed the terms and conditions of a small consolidation group |
Indicators of groups are:
Category |
Assets (million) |
Sales revenue (million) |
Average number of employees |
Other conditions |
Small consolidation group* |
4 |
8 |
50 |
n/a |
Medium-sized consolidation group* |
20 |
40 |
250 |
Not a small consolidation group |
Large consolidation group |
At least two of the medium-sized consolidation group criteria have been exceeded |
*only one of the consolidated indicators may exceed the conditions
In addition to the above a consolidated entity need not be recorded line-by-line in a report of the consolidation group if:
- the consolidating entity was unable during the accounting period to exercise dominant influence over the consolidated entity
- the procurement of the information necessary for the preparation of the report with regard to the consolidated entity requires extremely unreasonable costs or long delays
- the shares of the consolidated entity are held exclusively with a view to their subsequent