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Consolidated techniques for groups of enterprises
with complex structure

Cristina Ciuraru-Andrica, University “Vasile Alecsandri” from Bacau, Romania

Abstract:

The preparation and disclosure of the financial statements of a group of enterprises involves
some consolidation techniques. The Literature presents many techniques, but in practice are
used two of them. They will be described first of all in a particular manner and after that in a
comparative one. The group of entities can choose one of these techniques, the final result (the
consolidated financial statements) being the same, whatever the option.

Key words:

Consolidated financial statements, levels consolidation, direct consolidation

1. Introduction

The Romanian explicative dictionary defines technique as an aggregate of
proceedings and skills used in a certain activity. For achieve its goals (the content of
consolidated financial statements and also the rules for their preparation, approval,
audit and disclosure), the consolidated accounting (a department of financial
accounting applied in case of groups of enterprises), uses a so-called consolidation
technique. According to above technique’s definition, the consolidation technique
regards an aggregate of empirical proceedings and skills used, especially, for
preparation of annual consolidated financial statements, legal.
The Literature 1 refers to four techniques of consolidation: levels consolidation
technique, direct consolidation technique, modular consolidation technique and the
technique of consolidation using fluctuations method.
The modular consolidation technique consists in separating the entities’ financial
statements on module. These will be regrouped later, according to the needs of the
group regarding the administration, on different activities, geographic area,
production’s matters etc.
The technique of consolidation using fluctuations method starts with the previous
period’s consolidated information and continues with the integration of consolidated
flows of the current accounting period, which allows resolving not only the problem
of booking them, but also the problem of annual consolidation area.
In our country practice, are used the left techniques: levels consolidation technique
and direct consolidation technique, probably as a result of stipulate them in the first
rule regarding consolidated financial statements (approved by O.M.F. nr. 772/2.000
recalled by O.M.F.P. nr. 1.752/2.005 also recalled by O.M.F.P. 3.055/2.009).
It is imperative to say that these techniques are not applied to any case of entities
group. For a group of enterprises with a dentritic organigram and one level of
boundaries between them (fig. no. 1) these techniques are not applicable. Whatever, in

1 Feleagă N., Ionaşcu I. (1998), Tratat de contabilitate financiarǎ, vol. I-II, Ed. Economicã,
București

Studies and Scientific Researches ‐ Economic Edition, no. 14, 2009

practice, such a simple groups do not often exist. Therefore these intervene in case of
complex groups (fig. no. 2) made by joining direct and indirect investments with
those linear, multiple, circular and mutual.

Figure no. 1 Simple group Figure no. 2 Complex group

These consolidation techniques used in the preparation of consolidated financial
statements are applied jointly with the consolidation methods scheduled in
regulations2. Moreover, they lead, in most cases, to a combination between them
(methods) because the group of enterprises may include controlled enterprises, which
are integrated using global method, joint-ventures, which are subjects for
proportionate consolidation and also associates, integrated by equity method3.
Therefore, in the case of groups with a complex structure, the methods and the
techniques coexist and work simultaneously, under the rules relating them.
Next, we present some characteristics of two techniques, which came out for practice,
levels consolidation technique and direct consolidation technique.

2. Levels consolidation

Levels consolidation is a steps consolidation, each step finalizing with the preparation
of subgroup’s consolidated financial statements. A level concentrates all the
subgroups from the same consolidation step. Initially, the subgroup joins the entities
placed farthest from the parent, regarding the control chain, and the entities next to
them. Thus, the subgroups form successively up to the parent where is ending the
consolidations’ suite with the consolidated financial statements of the group as a
whole. In every single subgroup exits an entity, at the superior level, that have a
parent role for the other (the others) entity (entities) from the inferior level.
Therefore, figure no. 2, above, first of all will be consolidated the enterprises D and E
in their parents A and B, forming the subgroups AD and BE, and the next, will be
consolidated these subgroups and the entity C in the parent M.
For the preparation of the subgroups’ consolidated financial statements, it is used the
parent-role entity’s share in every other entity of the subgroup, and for establish the
consolidation method it is used the power of the voting rights owned by the group’s
parent in each consolidated enterprise.

3. Direct consolidation

2 O.M.F.P. nr. 3.055/2009 pentru aprobarea reglementărilor contabile conforme cu directivele
europene publicat în Monitorul Oficial nr. 766 din 10 noiembrie 2009
3 Scorțescu F. I. (2005), Unele considerente cu privire la tehnica de consolidare pe paliere a
societăţilor comerciale cu profil horticol, în „Lucrări ştiinţifice”, Universitatea de Ştiinţe
Agricole şi Medicină Veterinară „Ion Ionescu de la Brad” Iaşi, vol. 48, seria Horticultură

A B A BC

M M

Studies and Scientific Researches ‐ Economic Edition, no. 14, 2009

Direct consolidation presumes the consolidation of each group’s enterprise directly
into parent, in this way preparing only the consolidated financial statements of the
group as a whole. Thus, it is imperative to share the equity of each consolidated entity
between its parent and minority interests according to them portion of investments.
Also, between them, must be shared the investments that will be eliminated from
consolidation. The instrument used in this case is interests’ portion of both, parent and
minority interests, but in the enterprise that holds the investments. These two portions
are different.
In the case of above example (fig. no.2), the entities A, B, C, D and E will be
consolidated directly into parent M, apart from the latent subgroups. The share of
their equity will be made using the interests’ portion of the parent and minority
interests in these entities. For eliminate the investments will be used also their
interests’ portion but held in A and B.

4. Levels consolidation vs. direct consolidation

The both consolidation techniques have special characteristics that will be presented
comparatively in below table (table no. 1), emphasizing similarities and differences
between them, advantages and disadvantages also.

Table no. 1 Levels consolidation vs. direct consolidation

Characterization
criteria

Levels consolidation Direct consolidation

1. Goal Preparation of the annual
consolidated financial
statements of a group as a
whole;

Preparation of the annual
consolidated financial
statements of a group as a
whole;

2. Applicability
field

Medium and small groups of
enterprises with a complex
structure and a limited levels
of boundaries;

Medium and small groups of
enterprises with a complex
structure and at least two
levels of boundaries;

3. Procedure On steps, corresponding to
the existent levels of
boundaries in the group’s
organigram, into where it is
forming subgroups;

Directly, whatever the number
of the existent levels of
boundaries in the group’s
organigram, ignoring the
consolidation steps;

4. Principles The series of consolidations
start from the entity placed
farthest from the parent,
regarding the control chain,
and ascend up to it;

The order of consolidations is
insignificant;

5. Accomplish
method

It is preparing the
consolidated financial
statements of each subgroup
formed, using the adequate
consolidation method;

It is preparing only the
consolidated financial
statements of the group of
enterprises as a whole, using
the adequate consolidation
method;

6. Used
instruments

At each step, the interests’
portion of the parent-role
entity owned in every other

The interests’ portion of the
parent, owned directly in each
consolidated entity, whatever

Studies and Scientific Researches ‐ Economic Edition, no. 14, 2009

subgroup’s entity, from the
inferior level;

the level;

7. Equity share At each subgroup, between
the parent-role entity and the
minority interests (including
here, also, the interests’
share of other consolidated
entities from outside of
subgroup);

At the group as a whole,
between the parent and the
minority interests, according
to them share of interests
owned in consolidated
entities;

8. Investments
share before

eliminated them

At each subgroup, the
sharable investments belong
entirely to the parent-role
entity, as a result of direct
own;

At the group as a whole, in
case of indirect boundaries,
between the parent and the
minority interests, according
to their share of interests
owned in the entities that hold
the investments;

9. Advantages Allows a segmentation of the
financial information within
the group, by the
preparation, first of all, of
the consolidated financial
statements of the subgroups
and only after, the
consolidated financial
statements of the group as a
whole;

Provides directly, quicker and
with less expenses, the state
of the assets, liabilities,
financial position, income and
losses of any group of entities
and allows a better portion of
the consolidated entities’
equity, between the parent
and minority interests;

10. Disadvantages Requests much more work
for accomplish the suite of
consolidations, involving
more expenses, and also its
applicability is limited.

It not allows analysis within
the group which may
satisfying the needs of
administration and
information, based on a
segmentation on different
activities, geographical areas
etc.

Whatever the chosen technique, the consolidated financial statements must be the
same.

References:

1. Deju M. (2008), Contabilitate aprofundatǎ. Concepte, modele, studii de caz, Ed. Alma

Mater, Bacǎu
2. Feleagă N., Ionaşcu I. (1998), Tratat de contabilitate financiarǎ, vol. I-II, Ed. Economicã,

București
3. Malciu L. Feleagǎ N. (2004), Reglementare și practici de consolidare a conturilor: din

orele astrale ale Eurepei Contabile, Ed. CECCAR, București
4. Munteanu V., Țurcan A. (1998), Grupurile de societǎți – Consolidarea contabilǎ – Ed.

Economicǎ, București
5. Scorțescu F. I. (2005), Unele considerente cu privire la tehnica de consolidare pe paliere

a societăţilor comerciale cu profil horticol, în „Lucrări ştiinţifice”, Universitatea de Ştiinţe
Agricole şi Medicină Veterinară „Ion Ionescu de la Brad” Iaşi, vol. 48, seria Horticultură

6. IAS 27 (2004), Ghid pentru ȋnțelegerea și aplicarea Standardelor Internaționale de
Contabilitate, Ed CECCAR, București

Studies and Scientific Researches ‐ Economic Edition, no. 14, 2009

7. Ordinul Ministerului Finanțelor Publice nr. 3.055/2009 pentru aprobarea reglementărilor
contabile conforme cu directivele europene publicat în Monitorul Oficial nr. 766 din 10
noiembrie 2009