What the law requires
- Consolidated financial statements: under Section 129(3) of the Companies Act, 2013, a company with one or more subsidiaries — Indian or foreign — prepares consolidated financial statements in addition to its standalone accounts.
- Form AOC-1: a statement of the salient features of each subsidiary’s financial statements, attached to the parent’s accounts. For a foreign subsidiary it includes the reporting currency and the exchange rate at the year-end.
- Approval and filing: the consolidated statements are approved by the board, laid before the AGM and filed with the ROC alongside the standalone accounts.
Which standards apply
| If the parent follows | Consolidation | Foreign currency |
|---|---|---|
| Ind AS | Ind AS 110 (control-based consolidation); disclosures under Ind AS 112 | Ind AS 21 — the US subsidiary is a foreign operation with USD as its functional currency |
| Indian GAAP (AS) | AS 21 (consolidated financial statements) | AS 11 — the US subsidiary is usually a non-integral foreign operation |
Translating the US numbers into rupees
- Assets and liabilities at the closing rate on the balance-sheet date.
- Income and expenses at the rates on the transaction dates — in practice, an average rate for the period if rates didn’t move sharply.
- Share capital and pre-acquisition reserves at historical rates.
- The resulting difference is recognised in other comprehensive income and accumulated in a foreign currency translation reserve in equity (under AS 11, a similar reserve for non-integral operations), until the subsidiary is disposed of.
Keep the rates you used — month-end rates for the P&L average, and the closing rate — documented. They are also what AOC-1 and your auditors will check.
US GAAP to Ind AS adjustments
US subsidiaries usually keep books under US GAAP (or simply on a tax basis). Before consolidating, align them with the group’s accounting policies. Typical areas:
- Share-based payments — options granted by or to the US company, and any cross-border ESOPs.
- Leases — US GAAP keeps an operating-lease model for lessees that Ind AS 116 doesn’t.
- Deferred tax on the subsidiary’s US losses and on consolidation adjustments.
- Capitalised development costs and other policy differences.
- Tax-basis books — accruals, prepaid expenses and revenue timing often need adjustment first.
Consolidation steps
- Get the US subsidiary’s trial balance to the same reporting date (the group’s year-end, usually 31 March — even though the US company’s tax year may be the calendar year).
- Adjust to group accounting policies.
- Translate into INR as above.
- Eliminate intercompany balances and transactions — service fees, receivables and payables, loans, and the parent’s investment against the subsidiary’s equity. Mismatches usually come from timing or different exchange rates in each set of books.
- Recognise non-controlling interests if the subsidiary isn’t wholly owned.
- Prepare the consolidated statements, notes, AOC-1 and disclosures.
Audit and timing
- The parent’s auditor reports on the consolidated statements and will want reliable figures for the US subsidiary — audited or reviewed accounts, or sufficient work on them. There is often no US statutory audit requirement for a small private subsidiary, so agree the approach early.
- The US company’s calendar tax year and India’s April–March year don’t match — plan a 31 March close for group reporting.
- Consistent numbers across consolidation, transfer pricing and the ODI Annual Performance Report save a lot of questions. See transfer pricing and US subsidiary of an Indian company.
Frequently asked questions
Does an Indian company have to consolidate its US subsidiary?
Yes. Under Section 129(3) of the Companies Act, 2013, a company with one or more subsidiaries — including foreign subsidiaries — prepares consolidated financial statements in addition to its standalone financial statements, with Form AOC-1 attached.
How are a US subsidiary's accounts translated into INR?
Under Ind AS 21, assets and liabilities are translated at the closing rate, income and expenses at transaction-date rates (often an average rate), and the resulting difference is recognised in other comprehensive income in a foreign currency translation reserve.
What is Form AOC-1?
A statement of the salient features of the financial statements of subsidiaries, associates and joint ventures, attached to the holding company's financial statements; for foreign subsidiaries it includes the reporting currency and year-end exchange rate.
Does the US subsidiary need its own audit?
Small private US companies often have no US statutory audit requirement, but the Indian parent's auditor needs reliable figures for consolidation, so an audit or review of the US subsidiary is commonly arranged.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.