U.S. Group Accounting Guide
U.S. groups frequently ask when consolidated financial statements are required, what they must include, how consolidation works under U.S. GAAP, and how tax provisions are presented. This guide explains the U.S.-specific rules for public and private companies in a practical, investor-focused way.
Below you’ll find a linked table of contents, a concise explainer of the framework (ASC 810, ASC 740, SEC rules), and an extensive FAQ with 20 common questions and answers.
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.
Frequently asked Questions about Group Accounting in the U.S.:
ℹ️ Click a question to reveal the answer:
Who is required to present consolidated financial statements in the U.S.?
SEC registrants must present consolidated financials. Any entity reporting under U.S. GAAP consolidates controlled entities per ASC 810; private companies do so when GAAP reporting is required by stakeholders.
What are the core components required under U.S. GAAP?
Balance sheet, income and comprehensive income, cash flows, changes in equity, and notes; SEC filers also provide MD&A.
How is control assessed for consolidation under ASC 810?
Via the voting interest model (typically >50% voting rights) and the VIE model (power and economics are decisive even without majority voting rights).
Is proportionate consolidation allowed under U.S. GAAP?
Generally no. Joint ventures are accounted for using the equity method (ASC 323), with limited, industry-specific exceptions.
How are noncontrolling interests (NCI) presented under U.S. GAAP?
NCI is shown as a separate component of equity, and consolidated net income is attributed to controlling and noncontrolling interests.
What eliminations are required in consolidation?
Eliminate intercompany balances, intercompany revenues/expenses, dividends, and unrealized profits (e.g., inventory, fixed assets).
What SEC deadlines apply to 10-K and 10-Q filings?
10-K: 60/75/90 days for Large Accelerated/Accelerated/Non-accelerated filers. 10-Q: 40 days (Large Accelerated/Accelerated) or 45 days (Non-accelerated).
Are U.S. consolidated financial statements audited, and by whom?
Public companies are audited by PCAOB-registered firms; private company audits (if required) are performed under U.S. GAAS.
What is MD&A and who must provide it?
MD&A is a narrative analysis required for SEC registrants, discussing results, liquidity, capital resources, and known trends/uncertainties.
Can a U.S. domestic issuer file IFRS instead of U.S. GAAP with the SEC?
No. U.S. domestic registrants must use U.S. GAAP. Foreign private issuers may file IFRS as issued by the IASB.
How are business combinations accounted for in consolidation?
ASC 805 requires acquisition-method accounting: identify the acquirer, recognize and measure identifiable assets/liabilities at fair value, and recognize goodwill (or bargain purchase gain).
What is the equity method and when is it used (ASC 323)?
Used when an investor has significant influence over an investee, typically 20–50% ownership, absent control. The investment is adjusted for the investor’s share of earnings and other comprehensive income.
What is a VIE and who consolidates it (ASC 810)?
A Variable Interest Entity is one where voting rights are not the primary indicator of control. The party with both power over key activities and economics (primary beneficiary) consolidates.
How is income tax expense presented under U.S. GAAP (ASC 740)?
Current tax plus deferred tax effects of temporary differences and carryforwards. Expenses may be allocated between continuing operations and other components (intraperiod allocation).
What is a valuation allowance on deferred tax assets (DTAs)?
If it is more likely than not that some portion of DTAs will not be realized, a valuation allowance reduces DTAs to the realizable amount.
How are uncertain tax positions (UTPs) recognized and measured?
A benefit is recognized only if it is more likely than not to be sustained upon examination; measurement uses the largest amount of benefit that is more than 50% likely of being realized.
What disclosures about income taxes are typically required?
Rate reconciliation, components of DTAs/DTLs, NOLs and credit carryforwards (and expirations), valuation allowance, and UTP rollforwards for public entities.
Are interim (quarterly) financials required in the U.S.?
Yes for SEC registrants (Form 10-Q), prepared in accordance with U.S. GAAP for interim reporting (ASC 270) and SEC rules.
Do private companies have to publish consolidated statements publicly in the U.S.?
No. Private companies are not required to file with the SEC. They provide financials to lenders/investors as needed.
What are common first-time consolidation pitfalls in the U.S.?
VIE assessments not updated, missing intercompany eliminations, incomplete PPA, and weak ASC 740 processes (e.g., valuation allowance, UTPs, state taxes).
