Consolidation methods in international financial reporting standards and its effects on financial analysis

Although there may be occasions where an analysis the financial statements of individual companies it is more normal to find analysts facing interpretation issues related to group or consolidated financials. Consolidated financials are an amalgan of the individual financials of the corporated entities that constitude the group. International Accounting Standarts Commitee was assambled in 1973 for providing similarity of international accounting area. International Accounting Standarts were constituted by this commitee. Subsequently these standarts name was changed and it became International Financial Reporting Standarts. IFRS 3, IFRS 27 and IFRS 31 are interested with consolidation and the methods of consolidation. There are three main methods of consolidation. It can be defined by full consolidation method, proportionate consolidation method and equity method. Full consolidation is not warranted on the bases that the investor has significiant influence but not control. The nature of a joint venture is usually such that there are at least two ventures bound by a contractual arrangement and that the agreement established joint control of the entity. Proportionate consolidation is a method of combination that includes the investor share of each account caption. The equity method requires accounting for the group share of resources and earnings and is reflected as on line entity in the consolidated income statement and balance sheet. The efficience of consolidation methods to firm analysis can be made expressive by Altman Z-Score Analysis which is used for evaluation of credit analysis. After the consolidation, the companies? financial construction can be affected possitive or negative from its? joint ventures. Separately, it can differentiate dependency on the methods of consolidation.