Organizations operating under shared ownership or control must adhere to specific accounting principles when preparing consolidated financial statements. These principles ensure accuracy in reporting transactions and balances between related entities.

  • Elimination of internal revenues and expenses
  • Adjustments for intercompany profits in inventory and fixed assets
  • Reclassification of intercompany receivables and payables

Note: Transactions between entities under common control must be neutralized in consolidated reports to prevent inflation of revenues or assets.

For consistency, companies follow detailed frameworks when accounting for affiliated transactions. These frameworks define when and how to eliminate internal financial activity across entities in the same corporate group.

  1. Identify related parties and the nature of their transactions
  2. Analyze financial impact on individual and group-level statements
  3. Apply eliminations and adjustments as required
Type of Transaction Required Adjustment Reporting Impact
Intercompany Sales Remove revenue and cost of goods sold Prevents revenue duplication
Shared Services Reallocate costs proportionally Reflects true operational expenses
Loans Between Entities Offset receivables and payables Eliminates internal debt distortion