Page 249 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
Therefore, the concept of materiality would be considered while considering the observations of the component
auditor.

(CNO GA.140) Auditing the Consolidation
Before commencing an audit of consolidated financial statements, the auditor should plan his work to enable
him to conduct an effective audit in an efficient and timely manner.
1. Understanding Group Structure: The auditor should make plans, among other things, for understanding of
the group structure and group-wide controls including assessment of Information Technology (IT) system and
related general and applications IT related controls (manual and automated) for consolidation process.
2. Understanding Accounting Policies: Understanding of accounting policies of the parent and its components
as well as of the consolidation process including the process of translation of financial statements of foreign
components.
3. Use of Other Auditor’s Work: Determining the extent of use of other auditor’s work in the audit.
Coordinating the work to be performed.
4. Audit Planning: Determining and programming the nature, timing, and extent of the audit procedures to be
performed based on the assessment of the risk of material misstatement in consolidation process.
Completeness of Components included:
In consolidated financial statements, a parent must include all components unless exceptions apply. Auditors
should review the component list and ensure no eligible components are excluded. Perform the following
procedures:
1. Review of Prior Years: In respect of completeness of this information, the auditor should review his working
papers for the prior years for the known components.
2. Parent's Procedures: Review the parent’s procedures for identification of various components.
3. Inquiries of Management: Make inquiries of the management to identify any new components or any
component which goes out of consolidated financial statements.
Documents
4A. Statutory Records: Review the statutory records maintained by the parent, for example registers under
section 186, 190 of the Companies Act, 2013.
4B. Investments: Review the investments of parent as well as its components to determine the shareholding in
other entities.
4C. Joint Ventures: Review the joint ventures and joint arrangements as applicable.
4D. Other Arrangements: Review the other arrangements entered into by the parent that have not been
included in the consolidated financial statements of the group.
5. Changes in Shareholding: Identify the changes in the shareholding that might have taken place during the
reporting period.
6. Documentation: The auditor should document procedures performed for assessing completeness of the
components to be consolidated.

(CNO GA.160) Various means of Control.
There would be various means by which control, joint control or significant influence can be obtained.
Agreements & Minutes: In this regard, the auditor may verify the Board’s minutes, shareholder agreements
entered into by the parent, and agreements with entities to which the parent might have provided any technology
or know how.
Meetings subsequent to year end:
The auditor may also review the minutes of the meetings of the Board of Directors subsequent to the year-end to
understand if there has been any liquidation of investments or any further investments have been made.

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