(ii) Baldrick Co
Matters:
– Correct determination of materiality of Baldrick Co
– If Group exercises control, Baldrick Co is a subsidiary not an associate
– Need to determine nature of the Group’s interest in Baldrick Co
– Impact on audit opinion is at least qualification due to material misstatement
– Discussion of impact on Group profit if Baldrick Co is treated as a subsidiary
– Presentation issues
– Impact could be pervasive in combination with the sale and leaseback
Evidence:
– Agreement of the cash paid to acquire Baldrick Co to cash book and bank statements
– Review of board minutes for discussion of the change in Group structure and for authorisation
of the acquisition and disposal
– Review of legal documentation pertaining to the acquisition of Baldrick Co, to confirm the
number of equity shares acquired, and the rights attached to the shareholding, e.g. the ability
to appoint board members
– Inspection of other supporting documentation relating to the acquisition such as due diligence
reports
– Notes of discussion with management regarding the exercise of control over Baldrick Co,
e.g. the planned level of participation in its operating and financial decisions
– Review of forecasts and budgets to assess the plans for integrating Baldrick Co into the Group
– Ensure that losses from the date of acquisition only are consolidated
– Evaluation and recalculation of amounts recognised in Group equity in respect of Baldrick Co,
in particular the determination of pre- and post-acquisition results
Maximum marks 16