Consolidation of Financial Statements: Key Rules and Requirements

Consolidation of financial statements is a process that requires not only advanced accounting proficiency, but also thorough knowledge of the applicable regulations. It involves combining financial statements of at least two related entities and presenting their financial situation and financial results as if the entities constituted one economic entity.

According to the Polish Accounting Act (PAA), the parent company with a registered office or a place of management within the territory of Poland is obligated to prepare an annual consolidated financial statement for the entire capital group. This statement applies to the parent company and all its subsidiaries, regardless of their registered office.

When is consolidation needed?

According to regulations, consolidation does not only include parent companies and their subsidiaries, but also other subordinated entities that belong to the capital group. The consolidated financial statement must be prepared in one of the two forms:

1. According to the Polish Accounting Act (PAA)
2. According to the International Financial Reporting Standards (IFRS)

The duty to draw up the financial statement according to the IFRS applies to security issuers and banks. Security issuers that intend to apply for admission to public trade and subsidiaries that belong to capital groups in which the higher-level parent company applies the IFRS can also draw up consolidated statements based on those standards.

When the Exemption from the consolidation duty is possible?

Regulations of the PAA provide for certain exceptions that allow parent companies to avoid the obligation to draw up a consolidated financial statement. Exemption is possible when the entire data of the parent company and its subsidiaries, as of the balance sheet date, do not exceed at least two of the following three values:

1. Before consolidation exclusions:
   • Total balance sheet assets: PLN 38,400,000
   • Net revenue from sales of goods and products: PLN 76,800,000
   • Average annual employment calculated as full-time equivalent: 250 people
2. After consolidation exclusions:
   • Total balance sheet assets: PLN 32,000,000
   • Net revenue from sales of goods and products: PLN 64,000,000
   • Average annual employment calculated as full-time equivalent: 250 people

Apart from the above-mentioned exemptions, there are other options based on the provisions of the PAA and the IFRS. For example, an exemption may apply in a situation in which the parent company holds 100% or at least 90% of shares in a subsidiary and meets specific conditions, such as being subject to consolidation by a higher-level parent company or submission of a translated financial statement.

IMPORTANT! There are currently works being conducted on amendments in the Polish Accounting Act regarding, among others, exemptions from consolidation (the thresholds before and after consolidation exclusions will be increased). As of the date of this article, the works on the amendment of the said act are carried out in the Polish Sejm and may become effective already in 2025.

What are the Components of the consolidated financial statement?

A consolidated financial statement drawn up according to the PAA consists of:

1. A consolidated balance sheet
2. A consolidated profit and loss account
3. A consolidated cash flow statement
4. A consolidated statement of changes in equity
5. Additional information that includes an introduction and additional information and explanatory notes

Additionally, it is necessary to prepare a consolidated statement on the operations of the capital group. Importantly, it can be drawn up together with the report on the operations of the parent company.

In the case of consolidated financial statements under the IFRS, the components are similar but the IFRS use a different nomenclature and require an additional statement of other revenue. The components of a consolidated financial statement under the IFRS include:

1. A consolidated statement of financial position
2. A consolidated statement of profit or loss and other comprehensive income
3. A consolidated statement of changes in equity
4. A statement of cash flows
5. Additional information on the adopted accounting principles and explanatory information

Entities that prepare statements according to the IFRS do not need to draw up a consolidated statement on operations.

What are the deadlines and formalities concerning the consolidated statements?

1. Preparation of the consolidated statement: Must be completed not later than within three months from the balance sheet date for which the annual financial statement of the parent company is being drawn up.
2. Electronic form: The statement must be drawn up in an electronic form and signed with a qualified electronic signature, certified signature or personal signature.
3. Approval: The consolidated statement must be approved by the approving body of the parent company within six months from the balance sheet date.
4. Submission to the Polish National Court Register: The head of the entity files the documents in the Polish National Court Register within 15 days from their approval. If the obligated persons refuse to sign the financial statement, a proper declaration must be submitted.

What are the differences between the PAA and the IFRS?

There are significant differences between the provisions of the PAA and the IFRS, such as, among others: definitions of related entities, control rules, valuation methods, exemptions from consolidation, amortization of goodwill and the settlement of minority interest. For example, the IFRS provides a broader definition of related entities and goodwill is not subject to amortization but it requires annual tests for impairment.

author: Julia Leszczyńska, Accounting Assistant, MDDP Outsourcing Katowice

We invite you to read the remaining articles in the ‘Financial Report 2025’ series:

1. Schedule of Works on the Financial Statement: The Key to Effective Reporting
2. Determining the Form of Financial Reporting: Key Aspects
3. Audit Obligation and Selecting the Auditing Company: Key Aspects
4. Inventory of Assets and Liabilities and Their Valuation
5. Valuation of Assets and Liabilities on the Balance Sheet Date
6. Preparation and Signing of the Annual Financial Statement: A Step-by-Step Guide
7. Consolidation of Financial Statements: Key Rules and Requirements
8. E-Statements: A Guide to Electronic Reporting of Financial Statements
9. Sending a Financial Statement After the Deadline: Consequences and Procedures

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