Why we need FCM-Financial Consolidation Management
• As an organization grows, so does the difficulty of its financial consolidation and reporting challenge.
• Organizations must deal with multiple currencies, various accounting standards, and a host of reporting and compliance regulations.
• Many grapple with the challenges brought on by mergers and acquisitions, such as the integration of new business units into the reporting chain.
• Through all of this, the organization must balance the need for precise financial reporting and corporate governance with the need for timeliness in meeting reporting deadlines.
• Lets look at one of the Indian Conglomerate – TATA
Such a complex structure!
Types of business consolidations
• Statutory Merger: a business combination that results in the liquidation of the acquired company’s assets and the survival of the purchasing company.
• Statutory Consolidation: a business combination that creates a new company in which none of the previous companies survive.
• Stock Acquisition: a business combination in which the purchasing company acquires the majority, more than 50%, of the common stock of the acquired company and both companies survive.
• Amalgamation: Means an existing Company which is taken over by another existing company. In such course of amalgamation, the consideration may be paid in cash or in Kind, and the purchasing company services in this process.
Terminology
• Parent-subsidiary relationship: the result of a stock acquisition where the parent is the acquiring company and the subsidiary is the acquired company.
• Controlling Interest: When the parent company owns a majority of the common stock.
• Non-controlling interest or Minority interest: the rest of the common stock that the other shareholders own.
• Wholly owned subsidiary: when the parent owns all the outstanding common stock of the subsidiary.
Tax consolidation
• Tax consolidation is a regime adopted in the tax or revenue legislation of a number of countries which treats a group of wholly owned or majority-owned companies and other entities (such as trusts and partnerships) as a single entity for tax purposes. This generally means that the head entity of the group is responsible for all or most of the group’s tax obligations (such as paying tax and lodging tax returns).
• The aim of a tax consolidation regime is to reduce administrative costs for government revenue departments and reduce compliance costs for corporate taxpayers. However, consolidation regimes can include onerous rules and regulations.
• Countries which have adopted a tax consolidation regime include the United States, France, Australia and New Zealand.
• There are four main reasons for consolidating.
- losses in one group company reduce profits in other group companies
- assets can be transferred between group companies without triggering tax on any gain
- dividends can be paid between group companies without tax liabilities arising
- tax attributes (for example imputation credits) of one group company can be used by other group companies
Posted on October 13th, 2008 by Ashwin Dedhia
Filed under: Business Intelligence, Emerging Trends
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