Planning a group audit

NotesVideoPaper exam

Think materiality, non-coterminous year, and changes in structure etc

Here's a nice little proforma to use in the exam

  • Group structure

    • The group structure must be ascertained to identify the entities that should be consolidated

  • Materiality assessment

    • If an acquisition in year - Preliminary materiality will be much higher than in the prior year

    • The materiality of each subsidiary should be assessed (in terms of the group)

      This will help decide:

    • Which to visit &

    • Which to do just analytical procedures on

  • Goodwill

    • Audit any goodwill arising on acquisitions

    • Audit any impairment test at the balance sheet date

  • Goodwill - Consideration

    • Any shares issued - use their MV

    • Any amounts in the future - Use the PV

      Check discount rate and recalculate the PV

    • Any contingent consideration - Use the FV

      Check assumptions used and discount rate for this

  • Goodwill - FV of NA acquired

    • Check FV is used not book value

      Check the FV of these items are correct (independently valued, work of others etc)

  • Groups - General

    • SFP - Ensure assets and liabs of Parent and subs added together but Associate not (separate line)

    • I/S - Ensure any mid year acquisitions and disposals are accounted for pro-rata

  • Additions in year

    • Step Acquisition - check the first acquisition has been revalued

    • Further Acquisition
      Ensure that the difference between amount paid and the NCI decrease goes only to reserves and not I/S

    • Goodwill

      See above

  • Disposals

    • Partial disposal
      Ensure that the difference between amount received and the NCI increase goes only to reserves and not I/S

    • Full disposal
      Ensure all assets, liabilities, goodwill and NCI relating to the sub have been removed and any profit on disposal is shown in the I/S

  • Group Transactions & Balances

    • A list of all the companies in the group included in group audit instructions 

      (to ensure that intra-group transactions and balances are eliminated) on consolidation

  • Analytical procedures

    • Acquiring subs with similar activities may extend the scope of analytical procedures available. 

      This could have the effect of increasing audit efficiency

  • Other auditors

    (See separate section)

  • Accounting policies

    • Material accounting policies should comply with the rest of the group. 

      So a group accounting policy for adjustment on 
      consolidation may be needed

  • Timetable

    Key dates should be planned for:

    • Agreement of inter-company balances and transactions

    • Submission of proforma statements to Parent

    • Completion of the consolidation package

    • Tax review of group accounts

    • Subsequent events review

    • Completion of audit fieldwork by other auditors

    • Final clearance on accounts of subsidiaries

    • Parent's final clearance of consolidated financial statements

  • Foreign Subs

    • SFP Ensure assets and Liabilities are translated at the year end closing rate

    • I/S Ensure the transactions are translated at the average or actual rate

    • Goodwill Ensure it is retranslated at the year end

    • Forex differences Ensure these go a translation reserve and not the Income statement

  • Associates

    • Check accounted for correctly using the equity method

      Cost + Post acquisition reserves on the SFP

      Share of PAT on the I/S

NotesVideoPaper exam