Page 250 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
(CNO GA.180) Exemption from Consolidation
Where a component is excluded from the consolidated financial statements, the auditor should examine the
reasons for exclusion and whether such exclusion is in conformity with the applicable financial reporting
framework.
1. Exemptions under Companies Act (Intermediate Subsidiary)
Similarly, under the Companies Act, 2013, intermediate subsidiary in India is not required to present
consolidated financial statements, if a company meets the following conditions:
1A. Subsidiary & no Objection:
(i) it is a wholly owned subsidiary, or is a partially-owned subsidiary of another company and all its other
members, including those not otherwise entitled to vote, having been intimated in writing and for which the
proof of delivery of such intimation is available with the company, do not object to the company not presenting
consolidated financial statements;
1B. Not listed or are in process of listing:
(ii) it is a company whose securities are not listed or are not in the process of listing on any stock exchange,
whether in India or outside India; and
1C. CFS Filed:
(iii) its ultimate or any intermediate holding company files consolidated financial statements with the Registrar
which are in compliance with the applicable Accounting Standards.
2. Exemption under Ind AS:
Ind AS 110 also prescribes certain criteria where consolidated financial statements are not required. In such cases,
the auditor should satisfy himself that the exclusion made by the management falls within these categories,
3. Exemption under accounting standards:
For example, under the Companies (Accounting Standards) Rules, 2006, there could be two reasons for exclusion
of a subsidiary, associate or jointly controlled entity: one, that the relationship of parent with the subsidiary,
associate or jointly controlled entity is intended to be temporary or the subsidiary, associate or joint venture
operates under severe long-term restrictions.
4. Evidence for exemption: In the case of an entity which is excluded from consolidation on the ground that
the relationship of parent with the other entity as subsidiary, associate or joint venture is temporary, the auditor
should verify that the intention of the parent, to dispose off the subsidiary, investment in associate or interest in
jointly controlled entity, in the near future, existed at the time of acquisition of the subsidiary, making
investment in associate or jointly controlled entity.
5. Reasons for Exclusion in Notes to accounts:
The auditor should also verify that the reasons for exclusion are given in the consolidated financial statements.
If an entity is excluded from the consolidated financial statements for reasons other than those allowed by the
applicable financial reporting framework, the auditor should consider its effect on the auditor’s report to be
issued.
6. Change in Component Status:
The auditor should also examine whether there is any change in the status of a component (e.g., subsidiary to
associate, JV to associate or vice – versa). The auditor, in such cases, should examine whether these changes have
been appropriately accounted for in the consolidated financial statements as required by the relevant accounting
standards/Ind AS under the applicable financial reporting framework.

(CNO GA.200) Consolidation Methods under Accounting Standards.
1. AS 21 Line-by-Line Basis for Subsidiary:
In preparing consolidated financial statements in accordance with the Companies (Accounting Standards) Rules,
2006, the financial statements of the parent and its subsidiaries are combined on a line-by-line basis by adding
together like items of assets, liabilities, income, expenses and cash flows. Then certain calculations like
determination of goodwill or capital reserve, minorities interest and adjustments like elimination of intra group

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