What is the main criterion for consolidating subsidiaries?

The primary criterion for consolidating subsidiaries is that the parent company must have control over the subsidiary. Control typically means that the parent company owns more than 50% of the subsidiary's voting stock, allowing it to direct the financial and operating policies of the subsidiary. This concept is rooted in accounting principles that emphasize the importance of reflecting the economic reality of the parent-subsidiary relationship in the financial statements.

Consolidation allows the parent company to present the financial position and performance of both itself and its subsidiaries as a single economic entity. This provides stakeholders a clearer picture of the overall operations and financial condition of the group as a whole.

While profitability, debt levels, or public trading status may be factors that influence a parent company's decision-making regarding investments or operations in a subsidiary, they do not serve as the basis for determining whether consolidation is necessary. The key factor is the control that the parent company exerts over the subsidiary.