Last minute bits - groups , GC, Related parties Flashcards
2.2.1 Statement of Financial Position and Statement of Profit or Loss and OCI
- Agree all subsidiaries are included/none excluded, to confirm completeness, unless: control lost; acquired exclusively for resale (IFRS 5 applies); an investment entity; or considered immaterial/insignificant).
*Cast and cross-cast all consolidation schedules to confirm arithmetic accuracy.
*Agree opening balances and permanent consolidation adjustments to prior year and consolidation schedule(s).
*Agree basic detail to audited component financial statements and/or audited consolidation returns.
*Recalculate all consolidation adjustments for accuracy (e.g. elimination of intra-group balances, transactions and profits/losses, fair value adjustments, carrying amounts that are group-orientated, taxation and deferred taxation).
*Agree consolidation approach is consistent with prior year (e.g. treatment of unrealised profit as group or subsidiary adjustment).
*Agree accounting policies consistently applied from prior year.
2.2.3 Non-coterminous Reporting Date
*Where a subsidiary has a non-coterminous reporting date, the group auditor should:
*Discuss with management that the reasons for different dates are still appropriate (e.g. no relaxation of legal requirements).
*Agree additional financial information prepared for consolidation purposes has been correctly adjusted.
*If no additional information has been prepared, confirm that the reporting date is within three months of the group reporting date and obtain confirmation (e.g. from the component auditor) that no material matters have arisen that need to be included.
2.2.2 Consolidated Statement of Cash Flows
*Agree the make up of group cash flow statement to the supporting financial statements of the group to confirm accuracy and completeness.
*Agree intra-group cash flows to supporting audited group returns, to confirm that they have been correctly identified and eliminated.
*Recalculate dividends paid to non-controlling interests and agree the amount to a separate line in cash flows from financing activities.
*Confirm, to supporting documents (e.g. schedules of net assets acquired/disposed), the correct cash flow treatment of subsidiary’s net assets, purchase/disposal of subsidiary and cash effect on acquisition or disposal.
*Agree cash flow disclosures for the purchase/disposal of subsidiaries.
2.3.1 Acquisitions in the Year
*Audit procedures for additions to the group in the year might include the following:
*Review management documentation, share certificate records, etc to confirm the date that control was obtained.
*Recalculate pre-acquisition reserves and post-acquisition revenue and expenses to confirm arithmetic accuracy.
*Recalculate goodwill on acquisition (see Chapter 9).
If the parent’s shares are publicly traded, agree the effect on segmental reporting (e.g. generates new reportable segment or included in a current reportable segment).
*Agree correct reason and treatment of entity if not consolidated (e.g. purchased with intention of immediate resale).
2.3.2 Disposals in the Year
*Audit procedures for disposals of group companies in the year might include the following:
Inspect share deregistration, sale records, public announcements, etc to confirm the date of the loss of control.
Confirm the amount of sales proceeds to sales contracts and other supporting records (e.g. bank ledger account).
Recalculate any deferred or contingent elements of sales proceeds, including fair value calculations, to confirm accuracy of management’s calculations.
Recalculate the gain or loss on disposal and agree the amount in the consolidated statement of profit or loss.
Review the individual financial statements of the parent to confirm that the disposal has been correctly reflected.
Agree that results up to the date of disposal have been correctly treated, including cash flows.
Review the consolidation schedule to confirm exclusion of the disposed entity’s assets (including goodwill) and liabilities. Consider if the disposal should be treated as a discontinued operation.
For a partial disposal, review the terms of sale and any related agreements made to confirm whether there is a loss of control or the remaining interest is that of an associate or joint venture.
If the disposal does not result in loss of control, recalculate the amount of the transaction within equity between the parent and non-controlling interest.
4.5.2 Materiality
The materiality of each subsidiary (or associate) should be judged in relation to the group’s total assets, results and account headings. As a guide:
greater than 10% is material;
less than 5% is immaterial.
For all material group companies the component auditor should:
be professionally competent;
be independent of the group; and
complete all audit procedures considered necessary.
4.6.6 Going Concern
The consolidated financial statements will be prepared on a going concern basis when the group, as a single business entity, is considered to be a going concern.
However, this basis may only be appropriate for some separate legal entities (e.g. subsidiaries) because the parent undertaking (or perhaps a fellow subsidiary) is able and willing to provide support. In this case:
Formal confirmation of the support will be sought in the form of a letter of support or “comfort letter”.
The letter of support should be approved by a board minute of the parent. The period of support may be limited (e.g. a year or until the subsidiary is sold).
The parent’s ability to provide support should also be confirmed (e.g. by examining the group’s cash flow forecast).
The fact of support and the period to which it is restricted should be noted in the financial statements of the subsidiary.
4.8.2 Timetable for Preparation of Group Accounts
4.8.1 Pro Forma Consolidation Statements
It is normal practice for the parent to issue a pro forma set of consolidation statements to all subsidiaries, together with a covering memorandum which lists group companies, group accounting policies, and specifies further information required. AP&M must be satisfied that properly completed pro forma will be adequate for the client’s (and audit) purposes.
Matters included in group instructions:
the agreement of intra-group balances and charges;
subsidiaries’ transactions (e.g. remuneration and loans) with parent’s directors;
details of intra-group balances, inventory, interest, management charges, sales and dividends (sufficient to eliminate on consolidation);
non-current asset transfers.
4.8.2 Timetable for Preparation of Group Accounts
The main events to be included in the timetable will include:
*agreement of intra-group balances, and charges;
*submission of pro forma statements;
component auditor’s preliminary clearance of pro forma statements;
completion of consolidation ready for audit;
*tax review of group accounts;
completion of audit of consolidation;
notification to subsidiaries of adjustments required;
*subsequent events reviews;
component auditor’s final clearance; and group auditor’s clearance of group accounts.
Related Party Disclosures
IAS 24 Related Party Disclosures defines a related party transaction as a transfer of
resources, services, or obligations between related parties, regardless of whether a
price is charged. Related party transactions are material by nature. As the managing
director is a related party, this means that transactions between himself and the
company will need to be disclosed in the notes to the financial statements.
There is a risk that appropriate disclosures are not made for all related party
transactions
