{"id":18633,"date":"2023-03-25T09:46:04","date_gmt":"2023-03-25T04:16:04","guid":{"rendered":"https:\/\/gstguntur.com\/?p=18633"},"modified":"2023-03-25T09:47:06","modified_gmt":"2023-03-25T04:17:06","slug":"audit-of-consolidated-financial-statements-ca-final-audit-question-bank","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/audit-of-consolidated-financial-statements-ca-final-audit-question-bank\/","title":{"rendered":"Audit of Consolidated Financial Statements \u2013 CA Final Audit Question Bank"},"content":{"rendered":"

Audit of Consolidated Financial Statements \u2013 CA Final Audit Question Bank<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Audit of Consolidated Financial Statements \u2013 CA Final Audit Question Bank<\/h2>\n

Question 1.
\nANC Ltd., having two subsidiaries but did not have any holding company, is a company whose securities are not listed on any stock exchange, whether in India or outside India. The CEO of the ANC Ltd. says that since it is an unlisted company therefore consolidation of financial statement is not applicable. Comment on the contention of the CEO.
\nAnswer:
\nPreparation of Consolidated Financial Statement:
\nAs per section 129(3) of the Companies Act, 2013, where a company has one or more subsidiaries or associate companies, it shall, in addition to its own financial statements prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with the applicable accounting standards.<\/p>\n

However, by virtue of second proviso to Rule 6 of Company (Accounts) Rules, 2014, the requirement related to preparation of consolidated financial statements shall not apply to a company if it meets the following conditions:<\/p>\n

(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;<\/p>\n

(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<\/p>\n

(iii) its ultimate or any intermediate holding company files consolidated financial statements with the Registrar which are in compliance with the applicable Accounting Standards.<\/p>\n

In the given case, ANC Ltd. is a holding company of two subsidiaries and not a subsidiary company.<\/p>\n

Conclusion: Contention of the CEO of the company is not tenable and the company needs to prepare consolidated financial statements.<\/p>\n

\"Audit<\/p>\n

Question 2.
\nWrite short note on: Responsibility of holding company for preparation of Consolidated Financial Statements. [Nov. 12 (4 Marks)]
\nAnswer:
\nResponsibility of holding company for preparation of Consolidated Financial Statements:
\nAs per section 129(3) of the Companies Act, 2013, where a company has one or more subsidiaries or associate companies, it shall, in addition to its own financial statements prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with the applicable accounting standards.<\/p>\n

The responsibility for the preparation and presentation of consolidated financial statements, among other things, is that of the management of the parent. This includes:<\/p>\n

(a) identifying components, and including the financial information of the components to be included in the consolidated financial statements;
\n(b) where appropriate, identifying reportable segments for segmental reporting;
\n(c) identifying related parties and related party transactions for reporting;
\n(d) obtaining accurate and complete financial information from components;
\n(e) making appropriate consolidation adjustments;
\n(f) Harmonisation of accounting policies and accounting framework; and
\n(g) GAAP conversion, where applicable.<\/p>\n

Apart from the above, the parent ordinarily issues instructions to the management of the component specifying the parent’s requirements relating to financial information of the components to be included in the consolidated financial statements.<\/p>\n

The instructions ordinarily cover the accounting policies to be applied, statutory & other disclosure requirements applicable to the parent, including the identification of and reporting on reportable segments, and related parties & related party transactions, and a reporting timetable.<\/p>\n

\"Audit<\/p>\n

Question 3.
\nDeluxe Ltd. holds the ownership of 51% of voting power and control over Executive Ltd. Holding company have prepared the consolidated financial statement as required by Sec. 129 of the Companies Act, 2013. What will be your objective, as an Auditor, in the audit of such Consolidated Financial Statement? [May 18 – Old Syllabus (4 Marks)]
\nOr
\nWrite a short note on: Auditor\u2019s objectives in an audit of consolidated financial statements. [RTP-Nov. 19]
\nAnswer:
\nObjectives of Auditor while auditing the Consolidating Financial Statements:
\nThe auditor of the CFS is responsible for expressing an opinion on whether the CFS are prepared, in all material respects, in accordance with the FRF under which the parent prepares the CFS.<\/p>\n

Therefore, the auditor\u2019s objectives in an audit of CFS are:<\/p>\n

(a) to satisfy himself that the consolidated financial statements have been prepared in accordance with the requirements of applicable financial reporting framework;
\n(b) to enable himself to express an opinion on the true and fair view presented by the consolidated financial statements;
\n(c) to enquire into the matters as specified in section 143(1) of the Companies Act, 2013;
\n(d) to report on the matters given in the clauses (a) to (i) of section 143(3) of the Companies Act, 2013; for other matters under section 143(3)(j) read with rule 11 of the Companies (Audit and Auditors) Rules, 2014; and
\n(e) The auditor should also validate the requirement of preparation of CFS for the company as per applicable FRF.<\/p>\n

\"Audit<\/p>\n

Question 4.
\nWhile doing the audit of consolidated financial statements, which current period consolidation adjustments are to be taken into account. [May 09 (8 Marks)]
\nOr
\nX Limited is the holding company of Y Limited and Z Limited. Explain the nature of current period consolidation adjustments which will be taken into account for the preparation of Consolidated Financial Statements. [May 14 (6 Marks)]
\nOr
\nYou have been appointed to audit consolidated financial statements of Xerna Ltd. for the financial year 2020-21 while vouching, you observed that Intra Group Transactions have not been eliminated
\nYou are, therefore, required to guide the management by explaining what are current period adjustments and list out the same.
\nAnswer:
\nCurrent Period Consolidation Adjustment
\nThese are those adjustments which are made in the accounting period for which Consolidated Financial Statements are prepared.<\/p>\n

These adjustments primarily relate to elimination of intra-group transactions and account balances including:
\n(a) intra-group interest paid and received or management fees, etc;
\n(b) unrealised intra-group profits on assets acquired\/transferred from\/to other subsidiaries;
\n(c) intra-group indebtedness;
\n(d) adjustments relating to harmonising the different accounting policies being followed by the parent and its components;<\/p>\n

(e) adjustments to the F.S. (of the parent and the components being consolidated) for recognized subsequent events or transactions that occur between the balance sheet date and the date of the auditor’s report on the consolidated F.S. of the group.<\/p>\n

(f) adjustments for the effects of significant transactions or other events that occur between date of components balance sheet and not already recognised in its F.S. and the date of the auditor\u2019s report on the group\u2019s consolidated F.S. 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;<\/p>\n

\"Audit<\/p>\n

(g) In case of a foreign component, adjustments to convert a component\u2019s audited F.S. prepared under the component\u2019s local GAAP to the GAAP under which the consolidated F.S. are prepared.<\/p>\n

(h) determination of movement in equity attributable to the minorities interest since the date of acquisition of the subsidiary.<\/p>\n

(f) adjustments of deferred tax on account of temporary differences arising out of elimination of profit and losses resulting from intra-group transactions and undistributed profits of the component in case of consolidated F.S. prepared under Ind AS.<\/p>\n

Question 5.
\nWrite short note on: Permanent Consolidation adjustments. [May 13, Nov. 15 (4 Marks)]
\nAnswer:
\nPermanent Consolidation Adjustments:
\nPermanent consolidation adjustments are those adjustments that are made only on the first occasion or subsequent occasions in which there is a change in the shareholding of a particular entity which is consolidated. These adjustments are:<\/p>\n

    \n
  1. Determination of Goodwill or Capital Reserve as per applicable AS.<\/li>\n
  2. Determination of the amount of equity attributable to minority.<\/li>\n<\/ol>\n

    Verification Points<\/p>\n