Parent company responsible for
Preparing individual accounts for the parent company and consolidated financial statements for the group as a whole
Consolidation adjustments (2)
- Adjustments made as part of the process to ensure compliance with the relevant accounting standards and company law
- To ensure financial statements present financial information as a single economic entity
Consolidation adjustment examples
- Elimination of investments in subsidiaries
- Where there have been intra-group transactions
Consolidation accounting issues (9)
- Different accounting policies
- Non-coterminous accounting periods
- Foreign subsidiaries
- Fair values and goodwill
- Group taxation
- Acquisitions made during the accounting period
- Related parties
- Subsidiaries not wholly owned
- Disclosure
Different accounting policies
IFRS 10 requires uniform accounting policies to be used throughout group when preparing consolidated financial statements
Non-coterminous accounting periods
Components year end must be within three months of parent company’s year end date
Foreign subsidiaries
Additional complexities eg group currency translations
Fair values and goodwill
Can result in complexities eg impairment reviews/ changes in values of, or new, assets or liabilities
Group taxation
Group VAT election/ consortium relief must be in line with relevant legislation
Acquisitions made during the accounting period
Only include results of new subsid from date of acquisition, involves time apportionment and judgement > complexity
Related Parties
RP transactions may be harder to identify due to increased complexity of organisational structure, transactions must be adequately disclosed
Subsidiaries not wholly owned
Non controlling interests in group
Disclosure
Consolidated financial statements require a higher level of disclosure than individual financial statements
Objective of consolidation process
To fulfil statutory obligation to prepare a set of consolidated financial statements that present a true and fair view of the group’s economic performance and position within a required timeframe
Example of consolidation process control activities
- Group instructions
Consolidation > Phase 1
Data Collection
Consolidation > Phase 2
Amalgamation of data
Consolidation > Phase 3
Posting consolidation adjustments
Consolidation > Phase 4
Reporting
An audit team of the same firm still falls under definition of component auditor, however, NET of procedures will be lower as (2)
- There will be previous experience with the component auditor
- The group engagement team and component auditor are subject to common policies and procedures
Assigned component materiality (by group) will be used by component audit team for
Purpose of group audit only. For opining on individual financial statements, component auditor will assess appropriate materiality in line with ISA 320
Audit risks for a group engagement can arise from three different areas of the group
- Risks within each component
- Risks arising from group structure or changes in GS
- Deficiencies of group wide controls that impact consolidation process
Level of work to be performed by component auditors depends on (4)
- Significance of the component
- Any identified RoMM that affects the group financial statements
- Assessment of group wide controls and whether they are deemed to operate effectively
- Group engagement’s understanding of the component auditor
Scoping the group
Assessing whether each component is significant or non-significant
