Page 260 - CA Final PARAM Digital Book.

should pay particular attention to the determination of pre-acquisition reserves of the
components. Date(s) of investment in components assumes importance in this regard. The
auditor should also examine whether the pre-acquisition reserves have been allocated
appropriately between the parent and the minority interests/ non-controlling interests of the
subsidiary. The auditor should also verify the changes that might have taken place in these
permanent consolidation adjustments on account of subsequent acquisition of shares in the
components, disposal of the components in the subsequent years.

➢ Netting off of Goodwill & Capital Reserves
It may happen that while working out the permanent consolidation adjustments, in the case of
one subsidiary, goodwill arises and in the case of another subsidiary a capital reserve arises. The
parent may choose to net off these amounts to disclose a single amount in the consolidated
balance sheet where permitted by the applicable financial reporting framework. In such cases, the
auditor should verify that the gross amounts of goodwill and capital reserves arising on
acquisition of various subsidiaries have been disclosed in the notes to the consolidated financial
statements to reflect the excess/shortage over the parents’ portion of the subsidiary’s equity

Current Consolidation Adjustment Old Course – (M09E, M11R, M14R, M14E, M16R, SM17, PM17, SM21,
QNO TITANIUM CNO— GA.240 M21E)
439.000
New Course – (SM23)
While doing the audit of consolidated Financial Statements, which current period consolidation
adjustments are to be taken into account?

Answer ➢ Current Period Consolidation Adjustments
Current period adjustments are those adjustments that are made in the accounting period for

which the consolidation of financial statements is done. Current period consolidation adjustments
primarily relate to elimination of intra-group transactions and account balances. While doing the
audit of consolidated Financial Statements, current period consolidation adjustments should be
taken into account. The auditor should review the memorandum records to verify the adjustment
entries made in the preparation of consolidated financial statements. This would also help the
auditor in ascertaining whether there is any difference in the elimination. Following are the
current period consolidation adjustments while making consolidation of financial statements:
(Intra group income / expense)-intra-group interest paid and received, or management
fees, etc.;

(Stock Reserve)- unrealised intra-group profits on assets acquired/ transferred from/ to
other subsidiaries;

(Intra group balances)- intra-group indebtedness;

(Harmonising accounting policy)-adjustments related to harmonising the different
accounting policies being followed by the parent and its components;

(Subsequent Events)-adjustments to the financial statements (of the parent and the
components being consolidated) for recognized subsequent events or transactions that
occur between the balance sheet date and the date of the auditor’s report on the
consolidated financial statements of the group.

➢ There are two types of subsequent events:
The first type of subsequent events consists of events or transactions that provide
additional evidence about conditions that existed at the date of the financial statements,
including the estimates inherent in the process of preparing financial statements (i.e.
adjusting events).

The second type of subsequent events consist of events that provide evidence about
conditions that did not exist at the date of the financial statements but arose subsequent
to that date (i.e. non-adjusting events).

➢ Events occurring after balance sheet date which do not require adjustments would not normally
require disclosure, although they may be of such significance that they may require a disclosure in

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