A good number of consolidated enterprises closed their previous financial years as of the end of January, and the annual group reports were prepared at the same time. The data of these reports and Hungarian statutory reports may differ, while their preparation deadline may not be the same either.
The parent company is in control
Preparing reports containing data of group companies and carrying out the consolidation are the responsibility of the parent companies. This process is conducted according to predefined valuation principles and schedules so that the information is made available to the owners for decision-making at the right time. Group reports have to contain data established based on uniform valuation procedures. To achieve this, subsidiaries have to take the valuation rules prescribed by the accounting policies of their parent companies into consideration when preparing their reports.
Regardless of this, subsidiaries naturally keep their books and assess their taxes according to local laws. The difficulty here is that in order to comply with group requirements, they have to make changes that are usually implemented outside their bookkeeping system. Thus tracking these adjustments from previous years poses a serious challenge every year. One solution is to keep the differences in account class “zero”, thus the data underlying both the local and the group reports is available in the bookkeeping system. Group reports are prepared for owners; their deadlines are set in advance and must be strictly complied with.
Data content of group reports varies
Group reports always include a balance sheet and an income statement, while the number of detailed data items changes depending on the data requirements of the owners. The reports definitely contain information on equity and any changes thereto. Other important elements include the company’s tangible assets as well as the volume of investments completed during the year. Experience shows that the extent of tangible asset depreciation required by the parent company deviates in many cases from the depreciation recorded based on local laws. So this is generally one of the differences that frequently crops up during group reporting.
The same is true for the impairment of receivables. The parent company’s accounting policies generally include a rule for the lump-sum accounting of impairment, while according to Hungarian rules, only impairment calculated based on individual valuations is accepted. The profitability of the various business lines also constitutes important information, so this can form part of the group report too if it is relevant for the given company. Using the pre-tax profit established based on standard principles, deferred (latent) tax is calculated, and the calculation breakdown can be included in the report as well.
Different forms
The form of group reports may vary depending on the given group. It can also happen that a parent company does not require a so-called reporting package, but simply aggregates the subsidiary’s data as booked in its own accounting system and then performs the consolidation. That said, it is more common to consolidate the data of the reports prepared by the subsidiaries, and to this end, group reports have to be prepared.
