A relationship between a parent company (simply, a parent) and its subsidiary (or subsidiaries) in which the parent controls its subsidiary in terms of the ability to influence and direct the financial and operating policies of the subsidiary to the benefit and best interest of the parent. Generally speaking, this control is obtained by virtue of having majority voting rights in another company (typically more than half of the voting rights assigned to the board managing the controlled entity). However, control may be evidenced indirectly by other means including power such as an agreement with other investors (whereby more than half of the voting rights are controlled through this agreement), or when an entity controls the financial and operating policies of another entity under an agreement to that effect, etc. A company can also control another through mergers and acquisitions (M&As). Reasons for such a control includes investment purposes, bolstering operations, alleviating competition, accessing tax benefits, increasing net operating income, etc.

A parent is required to prepare and present consolidated financial statements in which it consolidates its financials with those of its subsidiaries. Consolidation can be carried out using a set of procedures including:

• combination of “like items” (of assets, liabilities, equity, income, expenses, and cash flows) of the parent and subsidiary.
• full elimination of intragroup “like items” relating to any transactions within the group.
• offsetting the carrying amount of a parent’s investment in its subsidiaries and the parent’s share of equity in each of them.