ACCA Strategic Professional · Advanced Audit and Assurance (International) · Group audits
During the audit of Marlow Group, the audit team finds that consolidation adjustments include a manual journal eliminating intragroup sales of $4.2m between two subsidiaries, prepared by the group finance team. Which procedure is most appropriate for obtaining evidence on the consolidation process?
The auditor should reconcile intragroup sales and balances from both counterparties, test the manual elimination journal, and investigate unreconciled differences. Consolidation adjustments are the group team's responsibility and are not covered by component auditors' work on individual entity statements.
- AAgree the elimination to the confirmed balances of the group's external customers
- BInspect only the parent's financial statements for the intragroup sales
- CRely on the component auditors' reports on each subsidiary's individual financial statements without further work
- DReconcile intragroup sales and balances reported by both counterparties, test the elimination journal, and check any unreconciled differences are explainedCorrect
Explanation
Consolidation adjustments such as eliminations must be audited by the group team. Reconciling both sides of intragroup transactions and testing the journal, including differences, gives direct evidence on the elimination. Component reports on individual entities do not cover consolidation adjustments, and external customer confirmations are irrelevant to intragroup items.
Did you get it right without looking?
One question tells you little. A timed set on Group audits shows your real accuracy, how long you take and where you lose marks.
More Group audits questions
- Kestrel Group has a subsidiary in a country where its auditor, Dunmore LLP, is not a member of the group auditor's network. Dunmore's local …
- Halden Group acquired a subsidiary, Orsa Co, during the year. The group auditor is assessing the audit of the acquisition accounting at cons…
- Group auditor Penn & Rowe is planning the audit of Calder Group. Which of the following best describes an element of the understanding of th…
- Norvik Group's engagement team plans to use Dalton & Co, an audit firm outside its network, as a component auditor for a overseas subsidiary…
- Brightwater Holdings has 12 subsidiaries. The group audit team is deciding how to scope the audit under ISA 600 (Revised). Which approach is…
- Orion plc's group auditor intends to involve a component auditor from a firm outside its network for a subsidiary in a country where the aud…