Who Must Prepare Consolidated Financial Statements in the U.S.?

Under U.S. GAAP, any reporting entity that presents financial statements in accordance with GAAP must consolidate entities it controls. Control is assessed under the voting interest model and the variable interest entity (VIE) model in ASC 810.

Public vs. private companies

Public companies (SEC registrants) must present audited consolidated financial statements in their annual report (Form 10-K) and interim financials in Form 10-Q. Private companies generally prepare consolidated statements when required by GAAP, lenders, investors, or other stakeholders; they are not required to file publicly.

Components of U.S. Consolidated Financial Statements

U.S. consolidated financial statements typically include a balance sheet, statement of income and comprehensive income (single or two-statement format), statement of cash flows, statement of changes in stockholders’ equity, and notes. Presentation details follow U.S. GAAP and, for SEC filers, Regulation S-X.

Management’s Discussion & Analysis (MD&A) for SEC filers

SEC registrants include MD&A (Regulation S-K), providing narrative analysis of results, liquidity, capital resources, and known trends/uncertainties, complementing the financial statements.

Reporting periods and comparative information

Most SEC filers present two balance sheets and three years of income, cash flow, and equity statements, with scaled requirements for smaller reporting companies. Private companies follow GAAP and user needs/agreements.

Consolidation Scope and Methods (ASC 810/ASC 323)

The group includes the parent and all entities the parent controls. U.S. GAAP emphasizes substance over form: voting rights, contractual arrangements, and exposure to variable returns are considered.

Voting interest model (subsidiaries)

When the parent has a controlling financial interest (ordinarily >50% of voting interests or equivalent rights), it consolidates the subsidiary line-by-line. Noncontrolling interests (NCI) are presented within equity.

Variable Interest Entities (VIEs)

For entities where voting interests are not the primary indicator of control, the VIE model applies. The primary beneficiary—generally the party with both power over significant activities and exposure to significant benefits or losses—must consolidate.

Equity method (associates/JVs)

Investments with significant influence (often 20–50%) are accounted for under the equity method (ASC 323). U.S. GAAP generally prohibits proportionate consolidation (with limited industry-specific exceptions).

Intercompany eliminations & NCI

Intercompany balances, transactions, and unrealized profits are eliminated. NCI is reported as a separate component of equity, and income is attributed to controlling and noncontrolling interests.

Publication and Audit in the U.S.

Publication depends on status. Public companies file via the SEC’s EDGAR system; private companies typically share financials with lenders/investors without public filing.

SEC filings and deadlines (10-K/10-Q)

Annual report (Form 10-K): due 60 days (Large Accelerated), 75 days (Accelerated), or 90 days (Non-accelerated) after fiscal year-end. Quarterly report (Form 10-Q): due 40 days (Large Accelerated/Accelerated) or 45 days (Non-accelerated) after quarter-end.

Audit requirements (PCAOB/GAAS) & ICFR

Public companies’ annual consolidated financial statements are audited by a PCAOB-registered firm. Accelerated and Large Accelerated Filers also require an audit of internal control over financial reporting (ICFR) under SOX 404(b). Private company audits (if required) are conducted under U.S. GAAS.

Purpose and Users of Consolidated Financial Statements

Consolidated financial statements provide a fair presentation of the group as a single economic entity, enabling investors, creditors, and other stakeholders to assess performance, liquidity, solvency, cash generation, and risks.

Fair presentation and decision-useful information

High-quality reporting supports capital market access, reduces information asymmetry, and strengthens governance and compliance.

U.S. GAAP vs. IFRS: Which Applies?

U.S. domestic issuers use U.S. GAAP. Foreign private issuers (FPIs) may file IFRS financial statements as issued by the IASB without U.S. GAAP reconciliation; alternatively, FPIs may use U.S. GAAP.

Domestic issuers vs. foreign private issuers

Domestic registrants cannot file IFRS in lieu of U.S. GAAP. Private companies may choose a framework only as allowed by users/regulators (e.g., lenders may require U.S. GAAP audits).

Relationship to Tax Law and Presentation of Taxes (ASC 740)

Tax returns are based on tax law, not GAAP. In GAAP financials, income tax expense reflects current and deferred taxes under ASC 740; differences between book and tax bases create deferred tax assets/liabilities.

Current and deferred tax

Current tax equals taxes payable/refundable for the period. Deferred tax recognizes future tax effects of temporary differences and carryforwards, measured using enacted tax rates.

Uncertain tax positions & valuation allowances

ASC 740 requires measurement of uncertain tax positions (recognition threshold and measurement) and assessment of a valuation allowance against deferred tax assets when realization is not more likely than not.

Disclosures and rate reconciliation

Disclosures typically include the effective tax rate reconciliation, components of deferred taxes, valuation allowance movements, unrecognized tax benefits (UTPs), and other relevant qualitative/quantitative information.