Group consolidation and intercompany eliminations explained

What is group consolidation?

Group consolidation is the process of combining the financial statements of a parent and its subsidiaries into consolidated financial statements. Under IFRS 10, a parent that controls one or more other entities presents them, and the combined figures show the group as one economic entity.

Control decides which companies are in. Under IFRS 10, an investor controls an investee when it has all three of: power over the investee, exposure or rights to variable returns from its involvement, and the ability to use that power to affect those returns. Power often comes straight from voting rights, but it can also come from contracts, so each company is assessed on its facts.

A subsidiary is consolidated line by line from the date control is obtained until the date it is lost. Associates and joint ventures are different: they are accounted for with the equity method under IAS 28, as one investment line and a share of results, not line by line.

Paragraph B86 of IFRS 10 sets out the core procedures. Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries. Offset the parent's investment in each subsidiary against the parent's portion of that subsidiary's equity, with any goodwill accounted for under IFRS 3. Then eliminate in full the intragroup assets, liabilities, equity, income, expenses and cash flows that arise from transactions between group companies.

Why do intercompany transactions have to be eliminated?

Because a group cannot earn revenue from itself or owe money to itself. When one group company sells to another, the seller records revenue and a receivable, and the buyer records a cost and a payable. Added together without adjustment, the group would report revenue, costs, receivables and payables that involve no outside party.

Eliminations are made at the consolidation level only. Each member's own ledger stays as it is, because each company's own financial statements still need its real sales, costs and balances.

Which intercompany items need eliminating?

Every balance and transaction between group companies is eliminated in full. These are the ones most groups meet.

How do you reconcile intercompany balances before eliminating them?

Agree both sides first, then eliminate only what agrees. Eliminating one side against a different number on the other hides an error inside the group figures.

1. Identify the group counterpartiesIn each company's books, flag the customers and suppliers that are other group companies. A VAT or commercial registration number is a firmer link than a name, which may be spelled differently in Arabic and English.
2. Agree the rulesSet a cut-off date, the currency each intercompany balance is held in, and which side records a charge first. Most differences come from one company booking a charge a month later than the other.
3. Match balances pair by pairFor each pair of companies, compare A's receivable from B with B's payable to A, at the same closing rate.
4. Match income and expenseCompare A's intercompany revenue from B with B's intercompany cost from A for the period, at the same average rates.
5. Investigate the differencesCommon causes are goods or cash in transit, an invoice booked by one side only, a disputed charge and exchange rates. Correct the member books where one side is wrong.
6. Eliminate and documentPost eliminations for the agreed amounts, list any remaining difference with its reason, and keep the reconciliation in the consolidation file for the auditors.

Run this reconciliation every month as part of the close, not only at year end. A difference found within a month is usually a timing item; one found a year later takes days to trace. The same pairs matter for cash: payments between group companies have to come out of a group cash forecast too.

How do you eliminate unrealised profit on stock?

Remove the profit the selling company made on goods that are still inside the group at the period end. The group earns that profit only when the goods are sold to an outside customer.

The same applies to fixed assets sold within the group at a gain: the gain is removed, and the extra depreciation the buyer charges on the higher price is reversed over the asset's remaining life. IAS 12 applies to the temporary differences that arise when these profits are eliminated, so check the deferred tax effect. A loss on an intragroup sale can point to an impairment that needs to be recognised in the consolidated statements.

When the selling company is a partly owned subsidiary, agree with your auditor how the elimination is shared with non-controlling interests, and apply that policy consistently.

What changes when group companies use different currencies?

Each company's statements are translated into the group's presentation currency before they are combined, and each intercompany pair is compared at the same rate on both sides. In multi-currency groups, most mismatches come from one side using a different rate or a different date.

One difference stays after elimination. Under paragraph 45 of IAS 21, an intragroup monetary asset or liability cannot be eliminated against its counterpart without showing the effect of currency movements, because it is a commitment to convert one currency into another. If a Saudi parent lends to its Egyptian subsidiary in Saudi riyals, the subsidiary's exchange gain or loss on that loan stays in group profit or loss after the loan itself is eliminated, unless the loan forms part of the parent's net investment in the subsidiary, in which case the consolidated statements take the difference to other comprehensive income (IAS 21, paragraph 32). In April 2026 the IFRS Interpretations Committee published an agenda decision on how that exchange difference is classified under IFRS 18.

Which other consolidation rules catch groups out?

A few requirements of IFRS 10 cause most review comments.

• Uniform accounting policies. The group applies one set of policies to like transactions. Where a subsidiary uses a different policy, its figures are adjusted for consolidation (paragraphs 19 and B87).
• Reporting dates. Subsidiaries report at the parent's date. Where that is impracticable, the subsidiary's latest statements are used, adjusted for significant transactions, but the gap can be no more than three months and must stay the same from period to period (B92 and B93).
• Timing of control. A subsidiary's income and expenses are included from the date the group gains control until the date it loses control (paragraph 20 and B88).
• Non-controlling interests. The share of a subsidiary the parent does not own is presented within equity, separately from the equity of the parent's owners (paragraph 22). Profit or loss and each part of other comprehensive income are attributed to both, even if that leaves the non-controlling interests in deficit (B94).
• Changes in ownership. Buying or selling shares in a subsidiary without losing control is a transaction with owners, recorded in equity rather than as a gain or loss (paragraphs 23 and B96).

This guide is general information based on IFRS 10, IAS 21 and IAS 28 as published by the IFRS Foundation and read on 9 October 2026. It is not accounting advice: confirm the treatment of your group's transactions with your auditor.

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