Uniform accounting policies in group accounts

Q: What mistakes come up most often?

Asking for a restatement of statutory accounts. The subsidiary's filed accounts can stay as they are. The fix belongs in the consolidation. Recalculating from scratch each year. Without a brought forward schedule, the opening reserves adjustment drifts and the group balance sheet stops reconciling. Forgetting the tax effect. A policy alignment adjustment often changes the deferred tax position in the group accounts. Missing newly acquired subsidiaries. An acquired company's policies need reviewing from the acquisition date, alongside the fair value exercise. Omitting the parent difference note. Schedule 6 paragraph 4 applies even when the difference is entirely in the parent's own accounts. For the wider consolidation process, including eliminations and non controlling interests, see FRS 102 Section 9. Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Consolidated accounts must be prepared using uniform accounting policies for like transactions in similar circumstances. If a subsidiary uses a different policy in its own accounts, the parent does not ask it to change those accounts; instead the group makes a consolidation adjustment so that the subsidiary’s figures follow the group policy. The rule appears in FRS 102 paragraph 9.17, IFRS 10 paragraph 19 and, for Companies Act group accounts, Schedule 6 to SI 2008/410.

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What exactly does the rule require?

FRS 102 paragraph 9.17 says consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events and conditions in similar circumstances. If a group member uses other policies, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. IFRS 10 says the same thing in paragraph 19, with the adjustment mechanism in paragraph B87, which requires adjustments to ensure conformity with the group’s accounting policies.

Company law adds its own version for Companies Act group accounts. Paragraph 3(1) of Schedule 6 to The Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) says that where assets and liabilities included in the group accounts have been valued or determined by undertakings under accounting rules different from those used for the group accounts, the amounts must be adjusted to accord with the group rules. Paragraph 2(1) of the same Schedule confirms that the consolidated balance sheet and profit and loss account incorporate the subsidiaries’ information in full, subject to the adjustments the Schedule authorises or requires.

The point is that a group is reported as if it were a single entity. A single company could not account for one building at cost and an identical building at valuation simply because they sit in different departments, and the group cannot either.

Does the subsidiary have to change its own accounts?

No. The requirement bites on the consolidated accounts, not on the individual accounts of each subsidiary. A subsidiary can keep a policy that is permitted by its own framework, and the difference is dealt with on the consolidation worksheet. That is why FRS 102 and IFRS 10 both describe adjustments made to the member’s financial statements “in preparing the consolidated financial statements”.

Many groups still choose to align policies at subsidiary level because it removes a recurring adjustment and makes the subsidiary accounts easier to reconcile to the group pack. Company law also pushes in that direction for the choice of framework: section 407 of the Companies Act 2006 asks parent directors to secure that subsidiaries use the same financial reporting framework, which is a different and narrower rule covered in our guide to consistent frameworks across a group. Using the same framework does not guarantee the same policies, because FRS 102 contains many policy choices of its own.

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Where do policy differences usually arise?

Differences tend to come from three sources: policy choices inside one framework, a subsidiary acquired with its own history, and subsidiaries reporting under a different framework from the group.

Development costs. FRS 102 paragraph 18.8H lets an entity choose whether to capitalise development expenditure that meets the criteria, and 18.8K requires the chosen policy to be applied consistently. IAS 38 paragraph 57 makes capitalisation mandatory when the criteria are met. A subsidiary that expenses development costs under FRS 102 inside an IFRS group needs an adjustment. See capitalising development costs.
Borrowing costs. FRS 102 paragraph 25.2 allows a policy of capitalising borrowing costs on qualifying assets or expensing them all. IAS 23 paragraph 8 requires capitalisation of directly attributable borrowing costs.
Government grants. FRS 102 paragraph 24.4 offers a choice between the performance model and the accrual model, applied class by class.
Financial instruments. FRS 102 paragraph 11.2 lets an entity apply Sections 11 and 12 in full, or the recognition and measurement provisions of IAS 39 or IFRS 9. Two subsidiaries making different choices will measure impairment of receivables differently.
Leases. The new FRS 102 Section 20 allows more flexibility in defining low value assets. The FRC’s Basis for Conclusions (paragraph B20.8) notes that an entity can set a lower threshold, for example for consistency with a group accounting policy.

How is the adjustment made in practice?

The adjustment is a consolidation journal, usually recorded in a separate column of the consolidation worksheet before intragroup eliminations. It restates the subsidiary’s opening reserves for the cumulative effect up to the start of the year and its profit for the movement in the year, so the adjustment has to be tracked year on year rather than recalculated from nothing.

Illustration only. A UK subsidiary reporting under FRS 102 expenses all development costs. The group reports under IFRS and capitalises qualifying development under IAS 38. At the start of the year the subsidiary had spent 300 on projects that met the IAS 38 criteria, with 60 of amortisation on those projects already charged under the group policy. In the year it spends a further 100 that qualifies, and group amortisation for the year is 50. On consolidation the group adds an intangible asset of 240 brought forward (300 less 60) through opening reserves, capitalises 100 in the year by reversing that amount out of the subsidiary’s expenses, and charges 50 of amortisation. The closing intangible is 290, and group profit is 50 higher than the subsidiary’s own profit before tax effects.

Tax effects follow. IAS 12 paragraph 11 says that in consolidated financial statements temporary differences are found by comparing the carrying amounts in the consolidated statements with the tax base, so an IFRS group recognises deferred tax on the 290 if the tax base differs. An FRS 102 group should consider whether the adjustment gives rise to a timing difference under Section 29.

Are there exceptions to uniformity?

Schedule 6 paragraph 3(2) allows the parent’s directors to depart from the adjustment requirement if there are special reasons, but particulars of the departure, the reasons and its effect must be given in a note. Paragraph 3(3) says adjustments need not be made if they are not material for the purpose of giving a true and fair view. Neither FRS 102 nor IFRS 10 contains a general opt out, although the usual materiality principles apply.

The rule only covers like transactions in similar circumstances. Uniformity is about the policy, such as cost model or revaluation, capitalise or expense. It does not force identical estimates on assets whose use or economics differ: two subsidiaries depreciating similar machines can reach different useful lives if one runs its machines around the clock and the other uses them occasionally.

What about associates, joint ventures and merger accounting?

The same idea runs through the equity method. FRS 102 paragraph 14.8(g) requires an investor to adjust an associate’s financial statements to reflect the investor’s accounting policies when applying the equity method, unless it is impracticable. Obtaining the information can be harder than for a subsidiary, because the investor does not control the associate’s finance team. Our guide to associates under FRS 102 covers the wider method.

Where a group reconstruction is accounted for by merger accounting under FRS 102, paragraph 19.29 says carrying values are not adjusted to fair value, but appropriate adjustments shall be made to achieve uniformity of accounting policies in the combining entities. Paragraph 19.30 requires the comparative figures to be restated on the same aligned basis.

What must be disclosed?

The group’s accounting policies note describes the group policies, not each subsidiary’s local choices. Schedule 6 paragraph 4 adds a specific requirement: any differences of accounting rules between the parent company’s individual accounts and the group accounts must be disclosed in a note to the group accounts, with the reasons. This often catches parents whose own accounts use FRS 102 choices that the group, reporting under IFRS, does not use. Any departure under paragraph 3(2) must also be explained as described above.

Timing is a related but separate rule. FRS 102 paragraph 9.16 and Schedule 6 paragraph 2(2) deal with subsidiaries whose year end differs from the parent’s; see subsidiary with a different year end.

What mistakes come up most often?

Asking for a restatement of statutory accounts. The subsidiary’s filed accounts can stay as they are. The fix belongs in the consolidation.
Recalculating from scratch each year. Without a brought forward schedule, the opening reserves adjustment drifts and the group balance sheet stops reconciling.
Forgetting the tax effect. A policy alignment adjustment often changes the deferred tax position in the group accounts.
Missing newly acquired subsidiaries. An acquired company’s policies need reviewing from the acquisition date, alongside the fair value exercise.
Omitting the parent difference note. Schedule 6 paragraph 4 applies even when the difference is entirely in the parent’s own accounts.

For the wider consolidation process, including eliminations and non controlling interests, see FRS 102 Section 9.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.