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ICAS - ABS > Module 22 > Flashcards

Module 22 Flashcards

1
Q

Parent company responsible for

A

Preparing individual accounts for the parent company and consolidated financial statements for the group as a whole

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2
Q

Consolidation adjustments (2)

A
  • 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
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3
Q

Consolidation adjustment examples

A
  • Elimination of investments in subsidiaries

- Where there have been intra-group transactions

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4
Q

Consolidation accounting issues (9)

A
  • 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
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5
Q

Different accounting policies

A

IFRS 10 requires uniform accounting policies to be used throughout group when preparing consolidated financial statements

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6
Q

Non-coterminous accounting periods

A

Components year end must be within three months of parent company’s year end date

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7
Q

Foreign subsidiaries

A

Additional complexities eg group currency translations

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8
Q

Fair values and goodwill

A

Can result in complexities eg impairment reviews/ changes in values of, or new, assets or liabilities

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9
Q

Group taxation

A

Group VAT election/ consortium relief must be in line with relevant legislation

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10
Q

Acquisitions made during the accounting period

A

Only include results of new subsid from date of acquisition, involves time apportionment and judgement > complexity

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11
Q

Related Parties

A

RP transactions may be harder to identify due to increased complexity of organisational structure, transactions must be adequately disclosed

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12
Q

Subsidiaries not wholly owned

A

Non controlling interests in group

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13
Q

Disclosure

A

Consolidated financial statements require a higher level of disclosure than individual financial statements

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14
Q

Objective of consolidation process

A

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

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15
Q

Example of consolidation process control activities

A
  • Group instructions
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16
Q

Consolidation > Phase 1

A

Data Collection

17
Q

Consolidation > Phase 2

A

Amalgamation of data

18
Q

Consolidation > Phase 3

A

Posting consolidation adjustments

19
Q

Consolidation > Phase 4

A

Reporting

20
Q

An audit team of the same firm still falls under definition of component auditor, however, NET of procedures will be lower as (2)

A
  • There will be previous experience with the component auditor
  • The group engagement team and component auditor are subject to common policies and procedures
21
Q

Assigned component materiality (by group) will be used by component audit team for

A

Purpose of group audit only. For opining on individual financial statements, component auditor will assess appropriate materiality in line with ISA 320

22
Q

Audit risks for a group engagement can arise from three different areas of the group

A
  • Risks within each component
  • Risks arising from group structure or changes in GS
  • Deficiencies of group wide controls that impact consolidation process
23
Q

Level of work to be performed by component auditors depends on (4)

A
  • 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
24
Q

Scoping the group

A

Assessing whether each component is significant or non-significant

25
Q

Additional items to include in group ASM (7)

A
  • Group structure
  • Reporting instructions
  • Details of group engagement team
  • Reporting documents to be completed by component
  • Audit budget and fee allocation
  • Group reporting deadlines
  • Confirmation of group financial reporting framework
26
Q

Testing of group wide controls (4)

A
  • Inspect consolidation journals
  • Testing access controls and journals
  • Reading board minutes and internal audit reports
  • Enquire of group finance team regarding experience and qualifications
27
Q

Substantive tests on consolidation itself (3)

A
  • Review of key complex figures eg tax/ goodwill
  • Review of financial statements of subsidiaries
  • Analytical review of consolidated results compared to PY
28
Q

Additional time must be built into audit process to enable group auditor to (6)

A
  • Review work of component auditors
  • Review reporting documentation
  • Obtain management representation letters
  • Consider any modifications of subsids audit reports
  • Discuss salient issues
  • Evaluate effect of uncorrected misstatements
29
Q

Two assessments after audit work completed

A
  • Going concern assessment

- Subsequent events review

30
Q

Group Management Letter

A

Group auditors report significant internal control deficiencies identified in group-wide controls (and in each component)

31
Q

Group auditor responsibility for opinion in group accounts

A

Group auditor has sole responsibility

32
Q

Component auditors mentioned in group auditor’s report

A

Component auditors should not be mentioned in the opinion on the consolidated accounts

33
Q

Auditor responsibilities > letter of support (3)

A
  • Obtain written confirmation from company’s solicitors
  • Certified copy of special resolution amending company’s constitution
  • Copy of the most recent financial statements of company providing support, to ensure financially able to give support

ICAS - ABS (21 decks)

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