Consolidated Financial Statements are financial statements that present financial information belonging to the parent and several subsidiaries as if they were one entity. The purpose of the preparation of the report is to provide an overall, objective picture of the financial position and activities of a group of business entities. The preparation of the Consolidated Financial Statements is regulated in a separate PSAK, namely PSAK 65 “Consolidated Financial Statements”. The Accounting Team from KAP Agus Ubaidillah dan Rekan (TGS AU Partners) will discuss it in this article.

Not all companies are required to prepare Consolidated Financial Statements. The parent entity (Investor) is required to prepare Consolidated Financial Statements if the entity has control over the subsidiary (Investee). An entity is said to have control if it is exposed to or has rights to variable returns from its involvement with subsidiaries and has the ability to influence those returns through its power.

Consolidation begins when the parent has control over the subsidiary and ends when the entity loses control. If an entity loses control of its subsidiary, the entity must derecognize the assets and liabilities of the subsidiary in the Consolidated Financial Statements. The remaining investment in the former subsidiary is recognized at fair value and subsequently measured against the relevant PSAK. The entity recognizes a gain or loss as a result of the loss of control attributable to the former controller.

According to PSAK 65, there are exceptions to the application of consolidation for investment entities. An investment entity is an entity that generally has the following criteria:

  1. Obtaining funds from investors with the aim of providing investment management services for these investors;

  2. Express a commitment to investors that its business objective is to invest funds solely to obtain returns from capital appreciation, investment income, or both;

  3. Measure and evaluate the performance of all investments based on fair value.

As mentioned in paragraph 31, an investment entity does not consolidate its subsidiaries or apply PSAK 22 “Business Combinations” when it acquires control of another entity, but an investment entity measures its investment in its subsidiaries at fair value through profit or loss in accordance with PSAK 71 “Financial Instruments”.

Notwithstanding the requirements of paragraph 31, paragraph 32 requires an investment entity to consolidate in accordance with paragraphs 19 to paragraphs of PSAK 65 and apply PSAK 22 “Business Combinations” to the acquisition of a subsidiary if the subsidiary is not an investment entity even though its primary purpose and activities are to provide services. Related to the investment activities of the investment entity.

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