Consolidated Annual Accounts: what and who?
Key aspects you should know about Consolidated Annual Accounts.
Understanding the scope and purpose of holding companies or groups of companies can be really complex. But they are not ‘just’ a set of societal frameworks.
There can be many benefits of a corporate group, but no. Don’t just think about ‘tax evasion,’ through operations known as the so-called ‘Dutch sandwich.’ Or maybe you know more about the ‘Irish double.’
Moving on from the tax issue, as we said, other legal benefits derive from the holding or corporate group. In this case, the possibility of formulating Consolidated Annual Accounts for the entire group of companies. So let’s look at the key aspects you should know about Consolidated Annual Accounts.
The management bodies of Capital Companies have to formulate accounts annually.
Likewise, when appropriate, they must present a management report, and prepare a proposal to apply the result. In the same way they have to prepare, if applicable, their accounts and a consolidated management report.
What documents make up the Annual Accounts?
Based on Article 254 LSC, the annual accounts are made up of four documents:
- Profit and loss account
- A statement reflecting changes in the net worth of the year
- A statement of cash flows
When are the annual accounts, the management report, and the proposal to apply the result formulated?
The Administrative Body has a maximum period of three months to formulate these documents. This is established in Article 253 LSC.
That is to say, the formulation of the annual accounts, the management report and the proposal to apply the result must be undertaken.
All of this must be completed within a maximum of three months from the close of the financial year.
Does this form part of the Auditing Report of the Annual Accounts?
No. It is an independent document issued by the company’s accounts auditor.
At what point does the account auditor intervene?
The account auditor intervenes when forming the annual accounts of the company for the Administration Body.
Their mission is to review them to verify whether or not they offer a true image of the assets and the financial situation, as well as to verify that the results of the company are true. In addition, and also where appropriate, they consider concordance of the management report with the annual accounts for the year
The audit report: what is the deadline for its admission?
With respect to the term, the auditor of accounts will issue a report within at least one month. This month begins with the delivery of the accounts signed off by the administrators.
Such a report must contain details on the result of a company’s performance in accordance with the rules of the auditing of accounts.
Who has to approve the Consolidated Annual Accounts, and when and how?
Any parent company of a group of companies is obliged to draw up consolidated annual accounts and a management report.
And that is what Article 42 CCo establishes: ‘when a company holds or may hold, directly or indirectly, the control of another or others.’
As for who, the Administrative Body will be in charge of formulating the consolidated annual accounts.
However, it is vital to remember the following. The member companies of the group must formulate their own accounts. And this is despite the presentation of the annual accounts and the management report.
The consolidated accounts and the management report of the group must be submitted to the board for approval. That is to say, at the general meeting in which the company is obliged to simultaneously consolidate the annual accounts of this company.
Finally, these documents will be deposited with the Commercial Registry. The subsequent publication will be carried out in accordance with the provisions for the annual accounts of public limited companies.
Exceptions to the obligation to formulate and approve consolidated accounts
The companies – dominant of a group – will not be obliged to carry out the consolidation. This is established in Art. 43 CCo. But one of the following situations must be met:
- That on the closing date of the year of the company obliged to consolidate, all of the companies do not exceed, in their latest annual accounts, two of the limits indicated in the LSC. Unless some of the group companies have issued securities admitted to trading. But in a regulated market of any member state of the European Union.
- When the company which is obliged to consolidate is at the same time dependent on another company governed by said legislation, or by another member state of the European Union. Provided that the latter company holds 50 percent or more of the social holdings of those companies. And also, that shareholders with at least 10 percent have not requested the formulation of consolidated accounts. This takes into account a term of six months before the end of the year.
The presentation of consolidated annual accounts has a particular regime. That is why we have to attend to the key aspects so as not to incur irregularities.
And remember the obligation to continue presenting annual accounts of the companies that make up the group.
Do not forget the exceptions to the obligation to formulate and approve consolidated accounts.
Finally, we recommend the reading of the following in order to further knowledge of this subject: