25.1 Requirement to Prepare Consolidated Accounts

FRS 2 requires a parent undertaking to prepare consolidated accounts unless it claims one of the three exemptions referred to below. The consolidated accounts should include all subsidiary undertakings, consolidated on a line-by-line basis.

FRS 2 essentially adopts the definitions of parent undertaking and subsidiary undertaking introduced by the Companies Act 1985.

25.2 Definitions Parent Undertaking and Subsidiary Undertaking

In the explanation below, "A" refers to the parent undertaking whilst "B" refers to the subsidiary undertaking.

An undertaking (A) is deemed to be a parent undertaking of another undertaking (B) in any of the five following cases:

1. A holds a majority of the voting rights in B;

2. A is a member of B and has the right to appoint or remove directors holding a majority of the voting rights at board meetings;

3. A has the right to exercise a dominant influence over B;

4. A is a member of B and controls alone, following an agreement with other shareholders or members, a majority of voting rights in B;

5. A has a participating interest in B and either actually exercises a dominant influence over B or, A and B are managed on a unified basis. Note that a participating interest is a shareholding of at least 20%.

In practice most parent undertaking/subsidiary undertaking relationships are likely to fall within the first case i.e. whether or not A holds a majority of the voting rights in B. This case is also extended to sub-subsidiaries.

Situation (e)...