THE ACTUAL CONSOLIDATION PROCESS

Question 1

What an an auditor should eliminate in the actual consolidation process?

Answer 1

1. Eliminate Intercompany balances and transactions
2. Eliminate equity and investments

Question 2

When eliminating the intercompany balances and transactions, which are the items that have impact and which ones have no impact on the consolidated result?

Answer 2

Without impact the consolidated result:
- Intercompany Assets/liabilities accounts (loans, receivables,…)
- Intercompany income/expenses accounts (recharges)

With impact on the consolidated result:
- Sale of goods in inventories
1. If still included in the balance sheet of the buyer: elimination of the unrealised profit;
2. If subsequently sold to a third party: no adjustement required.
- Internal dividends
- Sale of fixed assets within the group other than book value.

Question 3

How the parent account the consolidate equity (what need to show)?

Answer 3

Equity value of the subsidiary: total value, without taking into account the holding percentage;

Net book value of the shares has to be shown;

The share of the equity value belonging to minority shareholders is recorded as a liability under the caption “minority interests”.

Question 4

What method is used to allocate the first consolidation difference?

Answer 4

Assessment of value to be allocated at fair value principle

Question 5

After allocation of the consolidation difference to assets and liabilities, how is considered the remaining part?

Answer 5

• Goodwill: if positive consolidatoin difference
• Cost: if negative consolidation difference