What must be adjusted in the financial statements of subsidiaries to align with the parent company's policies?

For the consolidation process, subsidiaries must adjust certain elements in their financial statements to ensure consistency with the parent company's accounting policies. The correct answer, accounting policies, refers to this alignment process.

When a parent company prepares consolidated financial statements, it is essential that all entities under its control adhere to the same accounting policies. This consistency allows for a true representation of the financial position and performance across the entire corporate group. If a subsidiary uses different accounting methods or principles, it could lead to misleading consolidated figures, making it difficult for stakeholders to assess the financial status of the entire group accurately.

Uniform accounting policies are crucial because financial reporting standards, such as IFRS or GAAP, allow companies to interpret accounting guidelines in various ways, leading to differences in how financial results are reported. Therefore, aligning the accounting policies of the subsidiaries ensures comparability and improves the reliability of consolidated financial statements.

Adjusting debt levels, revenue recognition, and asset valuations pertains to the financial metrics and figures that may be affected by different accounting approaches, but the primary requirement for effective consolidation is the consistent application of accounting policies across the entire group. This ensures that the financial statements present a coherent and unified financial picture, facilitating better analysis and decision-making for investors and other stakeholders.