ACCA AAA ^INT Syllabus D. Audit of Historical Financial Information - Planning a group audit - Notes ^{2 / 8}

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