Final answer:
Consolidated financial statements combine the financial information of a parent company and its subsidiaries into one comprehensive report, excluding intercompany transactions, providing a complete view of the corporate group's financial health.
Step-by-step explanation:
Consolidated financial statements are financial reports that aggregate the financial position and operations of a parent company and its subsidiaries. This means that instead of presenting separate financial statements for the parent company and each subsidiary, one comprehensive set of financials is prepared. This approach provides a clear view of the economic activities of the entire corporate group as a single economic entity. When a company owns more than 50% of a subsidiary, it typically is required to consolidate that subsidiary's financial information into its own statements.
These consolidated financial statements usually include a consolidated balance sheet, income statement, statement of cash flows, and a statement of changes in equity. Importantly, all intercompany transactions between the parent and its subsidiaries are eliminated during the consolidation process to avoid double counting. This gives external users, such as investors, regulators, and lenders, an accurate depiction of the company's financial health as a whole, rather than in fragmented parts.