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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Group audits

Halden Group acquired a subsidiary, Orsa Co, during the year. The group auditor is assessing the audit of the acquisition accounting at consolidation. Which of the following is the group audit team most likely to need to test directly rather than delegate to Orsa's component auditor?

The group team should test the fair value adjustments, goodwill and non-controlling interest calculated in the consolidation. These arise only on consolidation, so they sit outside the component auditor's entity-level work, whereas inventory, receivables and payroll at Orsa can be covered by the component auditor.

  1. AOrsa's inventory count at its year-end
  2. BThe fair value adjustments, goodwill calculation and non-controlling interest at acquisition recorded in the consolidationCorrect
  3. COrsa's trade receivables confirmation
  4. DOrsa's payroll controls

Explanation

Goodwill, fair value adjustments and non-controlling interest arise only at group level in the consolidation, so the group team must obtain evidence on them. Inventory, receivables and payroll are matters within the component's own records and can be handled by the component auditor under instruction.

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