History of consolidation: The 1970s, the pencil and eraser age
If a historian had to describe the consolidations done by the pioneering holding companies which chose to publish their consolidated accounts at the end of the 1960s, they would refer to the pencil and eraser age. PCs didn’t exist and spreadsheets were unheard of. Consolidation principles were not yet sufficiently well mastered to give rise to specialised software.
At most, some consolidators used accounting programs (no one talked about software at the time and even less about software packages) in which they piled company accounts as long entries of asset debits to liabilities credits and, when they were able to, via a screen. At the time, punch cards were still very much used as a data entry medium. Office calculators were an indispensable tool both for currency exchanges (the euro didn’t exist yet!) and for establishing all of the elimination entries.
It’s easy to see why, with these types of tools, the production of consolidated accounts and appendices could only be done on a very flexible schedule, especially if the extent of the group’s perimeter rendered it somewhat complex.
Some readers will remember that, at the time, there were already some “groups of groups” among the many quite large groups. They were real economic octopi present internationally and in nearly every business area. These “super groups” are worth spending a little time on, and one in particular, for which we had the extraordinary opportunity to develop a consolidation system.
It consisted of nearly 2000 companies, split into about 20 sub-groups. The latter were in turn treated as holdings because they were sometimes listed on several stock exchanges and, therefore, required to publish consolidated accounts before the parent company to which they reported.
How did this “super group” proceed? The consolidator at the time used large format, pre-printed sheets of paper with columns like today’s spreadsheets. The accounts of the sub-groups appeared in successive columns and were followed by adjustments and eliminations. Of course, each sub-group had previously done its own consolidation in its own way. Any errors or late amount changes required the use of an eraser and a significant amount of time for recalculations. At the end of the consolidation, its complexity was measured by the number of pencils and erasers used. As for the schedule, the group published its consolidated accounts in October of the following year.
One cultural point should be noted: most annual reports at this time first presented the parent company’s statutory accounts and the consolidated accounts appeared in the last pages of the appendix. This presentation underscored their perceived importance at the time.
In fact, a very small audience among board members, banks and financial analysts could boast of fully understanding the contents of the amalgamated figures whose real usefulness was often questioned.