Consolidation of financial statements is the process of combining the financial accounts and results of a parent company and its subsidiaries into one single comprehensive report. This is an integral practice for large corporations with multiple subsidiaries, as it provides a clearer picture of the overall financial health of the entire group. In this article, we will discuss the positive benefits of consolidation of financial statements and provide some examples to better understand its significance.

1. Enhanced financial analysis and decision making:
Consolidating financial statements enables companies to get a holistic view of their financial performance. By combining the financial data of all subsidiaries, management can better understand how the different entities are performing as a whole. This allows for more accurate financial analysis and facilitates strategic decision making. For instance, by consolidating financial statements, a company can identify areas where cost cutting is required, or where investments can be made for future growth.

2. Increased transparency:
Consolidation of financial statements promotes transparency within the organization as it provides a comprehensive, transparent view of the group’s financial position and performance. This is especially important for publicly listed companies, as it ensures accurate and consistent reporting to the shareholders and other stakeholders. It also helps to build investor confidence and trust in the company, as transparency is seen as a sign of a well-managed business.

3. Improved efficiency and cost savings:
Consolidating financial statements eliminates the need for separate accounting processes and reporting for each subsidiary. This saves time, effort, and resources for the finance team, allowing them to focus on other important tasks. It also reduces the cost of preparing and auditing multiple financial statements, resulting in significant cost savings for the organization.

4. Facilitates compliance with reporting standards:
Consolidation of financial statements is essential for companies to comply with accounting standards such as the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP). These standards require parent companies to report the financial performance of their entire group, which can only be achieved through consolidation. Compliance with these standards not only improves the credibility of the financial statements but also ensures the company’s compliance with regulatory requirements.

5. Accurate valuation of the company:
Consolidation of financial statements provides a more comprehensive and accurate valuation of the company. By combining the financial data of all subsidiaries, the company’s assets, liabilities, earnings, and cash flows are more accurately reflected. This is particularly important in scenarios such as mergers and acquisitions, where the valuation of the company plays a critical role in determining the transaction value.

To better understand the positive impacts of consolidation of financial statements, let us look at an example. Apple Inc., one of the world's largest technology companies, successfully uses consolidation of financial statements to present a more accurate picture of its financial performance. As of 2020, Apple has over 500 subsidiaries worldwide, making their consolidated financial statements vital for investors and stakeholders to evaluate the company's overall financial health.

Another example is the banking industry, where consolidation of financial statements is essential to understand the financial performance of the bank’s holding company, its subsidiaries, and its affiliates. This is crucial in monitoring the risk exposure of the entire banking group and ensuring compliance with regulatory requirements.

In conclusion, consolidation of financial statements provides numerous benefits for companies with multiple subsidiaries. It not only provides a holistic view of a company's financial performance but also promotes transparency and compliance with reporting standards. It also cuts costs, improves efficiency, and assists in decision making, making it an essential practice for large corporations.