The study aims to review existing research on consolidated financial statements (CFS) and identify major themes in the field. Additionally, the study aims to propose future research areas.
The authors systematically reviewed 325 articles from 1990 to 2024, obtained from diverse databases, including Scopus, Web of Science, JSTOR, ProQuest, EBSCOhost, Emerald Insight, and Google Scholar to have a comprehensive and inclusive literature review. Additionally, to draw more inferences, the authors examined the CFS literature across two periods: prior to and following the adoption of International Financial Reporting Standards (IFRS).
We have identified eight distinct themes: IFRS, consolidation methods, earnings management (EM), related party transactions (RPT), audit quality, special purpose vehicles (SPV), non-controlling interest, and tax avoidance. Furthermore, adopting IFRS shifts the direction of CFS literature from fundamental issues like incentives, economic consequences and methods of CFS to emerging issues such as EM, audit quality, SPV and tax avoidance mechanisms. Based on our review, it is necessary to further explore the field of CFS concerning its usage, impact of specific IFRS and financial crises, quality of disclosures and incentives for manipulation in consolidation practices.
Parent companies, acquirers of target companies, national and international tax officials, investors and auditors need to be vigilant about how significant shifts after IFRS, which underscores the importance of staying updated with regulatory changes impacting areas like EM, audit quality, tax avoidance and the use of SPV. As financial crises can exacerbate the pressures and incentives for manipulation in consolidation, robust internal controls and governance frameworks are essential to ensure the integrity of financial reporting. Besides, our findings offer valuable insights to new researchers in the field of CFS, covering past, present and future perspectives.
This study is the pioneer attempt to conduct a thorough and inclusive evaluation of the literature on CFS and determine the areas that need further work.
