You have often heard consolidated numbers and standalone numbers at the time of a company announcing its results. For example, when Infosys declares its results, the business news channels tends to flash consolidated numbers first and standalone numbers later.
Say there is a tendency to boost revenues. It could be simple that you show transactions between a parent company and its subsidiary.
By a consolidation what you tend to do is revert intra company sales between two subsidiaries back to stocks and thus helping to eliminate the profits that may arise between the two subsidiaries.
Why are consolidated statements better?
It is a better to look at consolidated statements that in isolation or standalone. In some countries it is a mandatory requirement to show consolidated numbers, while in others it might be that standalone numbers are accepted.
It is also not a bad idea to look at standalone numbers, as this tends to give you a picture of a big company without any large subsidiaries.
Otherwise subsidiaries may be just be created to show intra company sales between two subsidiaries to boost revenues.
There are some countries where you are not obliged to show a consolidated balance sheet at quarterly intervals. There is a large sized company In India that therefore does not oblige by showing a consolidated balance sheet every quarter.
The other problem is with regards to subsidiaries. Some of the large companies have so many subsidiaries that it would be difficult to show consolidated balance sheet every quarter As long as there is compliance and transparency at companies it is alright.
If you use subsidiaries merely as an excuse to boost revenues it is not a good idea.
Subsidiary should also follow same accounting principles?
At the time of consolidation of numbers, it is a must to have the subsidiary also use the same accounting standards. Adherence to GAAP or the Generally Accepted Accounting Principles is a good idea.
Many companies report their quarterly numbers as per Indian Accounting Standards as also with the US GAAP. This shows the amount of transparency and adherence to good governing standards at these companies.