Page 252 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
(CNO GA.220) Permanent Consolidation Adjustments
Permanent consolidation adjustments are specific adjustments made during the initial or subsequent changes in
shareholding of a consolidated entity. These include:
(Shortcut: GM meets SP)
Determination of Goodwill/Capital Reserve: Goodwill or capital reserve calculations should align with
relevant accounting standards. If goodwill arises in one subsidiary and capital reserve in another, and the parent
opts to net these, the gross amounts should be disclosed in consolidated financial statement notes.
Minority interest: The correct amount of equity attributed to minority or non-controlling interests should be
determined.
Subsequent Changes: Auditors should verify any changes in permanent consolidation adjustments due to
further share acquisitions or disposals Ltd., a tyre manufacturer, controls ABC Ltd. with a 70% stake. In FY 2021-
22, this was reduced to 55%, leading to adjustments in the consolidated accounts. These adjustments are termed
as permanent consolidation adjustments.
Pre-acquisition Reserves: Auditors should focus on determining pre-acquisition reserves of components,
considering the date of investment. It's essential to check if pre-acquisition reserves are correctly allocated
between the parent and the subsidiary's minority interests.

(CNO GA.240) Current Period Consolidation Adjustments:
Current period consolidation adjustments focus on the elimination of intra-group transactions and account
balances.
1. Conversion: Conversion of a foreign component's financial statements to the GAAP of the consolidated
statements.
1A. GAAP Adjustment.
2. Harmonising: adjustments related to harmonising the different accounting policies being followed by the
parent and its components
3. Different B/S Date: adjustments for the effects of significant transactions or other events that occur between
the date of the components balance sheet and not already recognised in its financial statements and the date of
the auditor’s report on the group’s consolidated financial statements when the financial statements of the
component to be used for consolidation are not drawn upto the same balance sheet date as that of the parent
4. Intra-group Transactions:
(a) Intra-group interest, management fees, etc.
(b) Unrealised intra-group profits on assets.
(c) Deferred taxes on unrealised intercompany profits as per Ind AS 12.
(d) Intra-group indebtedness.
5. Change in Minority Interest: Movement in equity for minorities interest/non-controlling interest since
acquisition.
6. Subsequent Events: Adjustments for recognized subsequent events between balance sheet date and auditor’s
report date.
6A. Adjusting events: Provide evidence about conditions at the financial statement date.
6B. Non-adjusting events: Provide evidence about conditions arising after the financial statement date.
6C. Events not requiring adjustments might need disclosure:
(i) Nature of the event.
(ii) Estimate of its financial effect or a statement if an estimate cannot be made.

(CNO GA.260) Memorandum Records:
Adjustments for consolidated financial statements are maintained in memorandum records by the parent. The
auditor should review these records for verification. Apart from reviewing the memorandum records, the auditor
should undertake various verification steps.
Harmonizing Accounting Policies:

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