What is Subsidiary Company?
A subsidiary is a company that is controlled by another entity, known as the parent. Control is typically established by ownership of more than 50% of the voting rights, but can also exist through contractual arrangements, board appointment rights, or de facto control. Subsidiaries are consolidated line-by-line into the parent’s financial statements under IFRS 10.
How It Works
- Identify control: power over relevant activities, exposure to variable returns, ability to use power to affect returns.
- Consolidate the subsidiary’s full assets, liabilities, revenues, and expenses with the parent.
- Eliminate intra-group transactions, balances, and unrealized profits on inventory and fixed asset transfers.
- Present non-controlling interests separately in equity and in profit.
- Disclose significant restrictions on the parent’s access to the subsidiary’s assets.
Saudi Context
Saudi holding groups (Olayan, Mawarid, BinDawood, Almarai) maintain extensive networks of subsidiaries across the GCC and beyond. CMA Corporate Governance Regulations require listed parents to disclose material subsidiaries in annual reports. ZATCA’s group zakat regime allows certain Saudi/GCC-owned groups to file a consolidated zakat return.
Example
A holding company owns 80% of an operating subsidiary that holds SAR 100m in assets and earned SAR 12m of profit. The group statement includes all SAR 100m of assets, but a SAR 24m non-controlling interest (20% of equity) and SAR 2.4m of profit (20% of 12m) attributable to NCI in the consolidated equity and P&L respectively.