Consolidated word is loosely used for financial statement reporting such as to aggregate the financial statement of entire business collectively (including subsidiaries). However, the Financial Accounting Standards Board (IFRS, US GAAP or Local GAAP) defines consolidated financial statement reporting as reporting of combined financial statement of parent and subsidiaries for a 3rd party prospective by treating parents and subsidiaries as a single economic entity. The consolidation process is driven by the law of the land.

Generally, 50% or more ownership in the investee defines it as a subsidiary and gives the parent company the opportunity to include the subsidiary in a consolidated financial statement. In some cases less than 50% ownership may be allowed if the parent company shows that the subsidiary’s management is heavily aligned with the decision making processes of the parent company.

If a company has ownership in subsidiaries, but does not choose to include a subsidiary in complex consolidated financial statement reporting, then it will usually account for the subsidiary ownership using the cost method or the equity method.