ACC 3613 Grp Audit Presentation Edited]

8/3/2019 ACC 3613 Grp Audit Presentation Edited]

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ACC3613

WEEK9TUTORIAL

GROUPAUDIT

Sectional Group G3

Group Members

Justin Teo

Ker Wanling

Chiu Weiqi

Khong Xiangzheng

Abdul Hakeem


2/57

PRESENTATIONOUTLINE

(A)

Identify and explain any misstatementsin DKs accounts.

(B)

Identify and explain any misstatementsin the consolidation schedule

(C)Meeting with Group CFO re Acquisition


3/57

ASSUMPTIONS

NotaxesHence,nodeferredtaximplica?ons

CKs(parents)entriesareallcorrectConsolida?onSchedulegivenbyclient

ConsolidatedfromTrialBalanceBecauseitemsnotpostedtoREyetPossiblymoreinforma?vedataProfitsnotclosedtoRetainedEarningsyet


4/57

(A)IDENTIFYANDEXPLAINANYMISSTATEMENTSIN

DKSACCOUNTS.

RecordinDKs(subsidiarys)books:

DrMgtFeeExpense(DK) $100k CrCash

1.NeedtorecordManagementfeeexpense(accounng&HR

support)&resulngpayable

WhichAccounttoCreditdependsonwhatthesubsidiaryhasdone:

Ifsubsidiaryallocatedexpensetoexternalexpense,CrExt.Expense

Ifsubsidiaryomiedtheentry,CrCash


5/57

CK DK

Dr Cr Dr Cr

Revenue 1,000,000 2,000,000

Cost of sale 400,000 600,000

anagement fee 100,000 100, 000

expenses -external 200,000 300,000

eceivable 300,000 600,000

ayable 400,000 200,000

inventory 400,000 500,000

on-current asset 400,000

ank 200,000 100,000

investment in DK 500,000

share capital 200,000 100,000

etained earning 300,000 200,000

loss on acquisition

2,000,000 2,000,000 2,600,000 2,500,000

No adjustment to Cash: assume 100k reported is derived

from actual year end balance (ascertained from bank

confirmation response & bank statements/reconciliation)


6/57

(A)IDENTIFYANDEXPLAINANYMISSTATEMENTSIN

DKSACCOUNTS.

AssumingCKsbookswerecorrect

DrInventory 100k

CrPayabletoCK 100k

2.Wrongamountofintercosalesofinventoryrecorded

ReasonabletoassumethatCKsbooks,ratherthanDKsbookscorrect

DKsendinginventorybalancewasat500k250kofinventorypurchasedfromCK(>200kreportedbyDK)


7/57

CK DK

Dr Cr Dr Cr

Revenue 1,000,000 2,000,000

Cost of sale 400,000 600,000

anagement fee 100,000 100, 000

expenses -external 200,000 300,000

eceivable 300,000 600,000

ayable 400,000 300,000

inventory 400,000 500,000

on-current asset 400,000

ank 200,000 100,000

investment in DK 500,000

share capital 200,000 100,000

etained earning 300,000 200,000

loss on acquisition

2,000,000 2,000,000 2,600,000 2,600,000

No adjustments to inventory: assume 500k reported is

derived from actual year end balance (ascertained from

stock count/ inventory system)


8/57

(B) IDENTIFYANDEXPLAINANYMISSTATEMENTSIN

THECONSOLIDATIONSCHEDULE.

DrManagementFeeIncome(CK) 100K

CrManagementFeeExpense(DK) 100K

1.Eliminateintercompanysale(managementfee)

2.NoGoodwillstatedinconsolidatedaccount

Dr Goodwill(BS) 200k CrLossonGW(P&L) 200k


9/57

CK DK Conso. Adjust Group

Dr Cr Dr Cr Dr Cr Dr Cr

Revenue 1,000,000 2,000,000 300,000 2,700,000

Cost of sale 400,000 600,000 1,000,000

anagement fee 100,000 100,000 100,000 100,000

expenses -external 200,000 300,000 500,000

eceivable 300,000 600,000 300,000 600,000

ayable 400,000 300,000 700,000

inventory 400,000 500,000 900,000

on-current asset 400,000 400,000

ank 200,000 100,000 300,000

investment in DK 500,000 500,000

share capital 200,000 100,000 100,000 200,000

etained earning 300,000 200,000 200,000 300,000

Goodwill 200,000 200,000

2,000,000 2,000,000 2,600,000 2,600,000 900,000 900,000 3,900,000 3,900,000


10/57



Whatcompanydid:

DrRevenue 300k

CrReceivables 300k

Correc?ngentrytoreversewrongentry:

DrReceivables 300k CrRevenue 300k

3.Adjustmentsforwrongconsolidatedentries


11/57

DrPayables 300k

CrReceivables 300k

4.EliminateIntercoBalances




12/57



Revenue 1,000,000 2,000,000 - 3,000,000

Cost of sale 400,000 600,000 1,000,000

anagement fee 100,000 100,000 100,000 100,000


eceivable 300,000 600,000 300,000 600,000

ayable 400,000 300,000 300,000 400,000

inventory 400,000 500,000 900,000


ank 200,000 100,000 300,000


share capital 200,000 100,000 100,000 200,000

etained earning 300,000 200,000 200,000 300,000

Goodwill 200,000 200,000

2,000,000 2,000,000 2,600,000 2,600,000 900,000 900,000 3,900,000 3,900,000


13/57

Profitearnedbyparentfromintercosale(asinparentsbooks)

(IntercoSales/Revenue)x(RevenueCostofSales)

= (300k/1000k)x(1000k-400k)

= 180k

InventoryPurchasedfromCK:300k.

Outofthis300kinventory,250kwasintheyearendbalance.

UnrealisedProfit=(250k/300k)x180k = 150k

ConsoJE:

DrSalesRevenue 300k

CrInventory 150k

CrCOGS 150k

5.EliminateUnrealisedProfits


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Revenue 1,000,000 2,000,000 300,000 2,700,000

Cost of sale 400,000 600,000 150,000 850,000

anagement fee 100,000 100,000 100,000 100,000


eceivable 300,000 600,000 300,000 600,000

ayable 400,000 300,000 300,000 400,000

inventory 400,000 500,000 150,000 750,000


ank 200,000 100,000 300,000


share capital 200,000 100,000 100,000 200,000

etained earning 300,000 200,000 200,000 300,000

Goodwill 200,000 200,000

2,000,000 2,000,000 2,600,000 2,600,000 1,200,000 1,200,000 3,600,000 3,600,000


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Revenue 1,000,000 2,000,000 300,000 2,700,000

Cost of sale 400,000 600,000 150,000 850,000

anagement fee 100,000 100,000 100,000 100,000


eceivable 300,000 600,000 300,000 600,000

ayable 400,000 300,000 300,000 400,000

inventory 400,000 500,000 150,000 750,000


ank 200,000 100,000 300,000


share capital 200,000 100,000 100,000 200,000

etained earning 300,000 200,000 200,000 300,000

Goodwill 200,000 200,000

2,000,000 2,000,000 2,600,000 2,600,000 1,200,000 1,200,000 3,600,000 3,600,000

CorrectedConsolidaonSchedule


16/57

(C)

Accounting for acquisitionIssues affecting current audit at group level

Qns: Consider the matters that planned

acquisition of EK might have an impact on your

audit of the CK Group for the year ending 31

August 2011. These matters should be organizedas questions you would like to raise with the

management of CK. Be prepared to explain to CK

management the rationale of these questions.


17/57

MEETINGWITHCFOTODISCUSS

PLANNEDACQUISITION

(1)Auditing Clients recording of transaction

(2)Impact on Audit @ Group Level & Consolidation

(3) Audit on Subsidiary

AUDITOR

Rationale

Impact onAudit

MANAGEMENT

Managements

Response


18/57


PLANNEDACQUISITION

(1)

Auditing Clients recording oftransaction

Checking clients elimination ofinvestment in subsidiary


19/57

Q.HOWISTHEACQUISITIONCONSIDERATIONTOBE

STRUCTURED

Ra?onaleforaskingques?on: Auditor(Us)needstodetermine:

IfinvestmentofsubsidiaryaccountisaccuratelystatedThedesignofauditproceduresfortheauditoftheacquisi?ontransac?on

ComplexityinvolvedintheauditDoweneedfinancial/valua?onexper?seNeedtoassessmanagementes?mates/inputs


20/57


STRUCTURED

Considera?onMethod:CashvsShares Managementwouldmostlikelybeunwillingtodiscloseconsidera?onamount?llaeracquisi?on

Unlikelythatshareacquisi?onisusedinthiscaseBothacquirer&targetarePteLtdcompanies

WhenisConsidera?onpaidUpfront,Con?ngentorDeferred

ManagementsResponse


21/57


STRUCTURED

Implica?onforAuditor:

Considera?onMethod:CashvsShares AuditProceduresstraighjorwardforCashAcquisi?on

DifficultyinobtainingfairvalueofacquirerssharesIsMarketvalueeasyavailableCKisaPrivateCompanynoavailablemarketprice


22/57


STRUCTURED

Implica?onforAuditor

WhenisConsidera?onpaid Upfront:BestforAuditor!LookatContractterms

Deferred:AsidefromContractterms(amount&?ming),AssessreasonablenessofManagementdiscountrates&theinputs

usedinthecalcula?onofWACC

Conngent:OntopofContractterms&discountrates,AssessreasonablenessofManagementprobabilityproec?ons(egbyproec?nghistoricaltrends,fluctua?onsanalysis,scenarioplanning)


23/57

Q.HOWISTHECOMPANYGOINGTOVALUETHEACQUISITION

(VALUATION

OFINA

) Ra?onaleforaskingques?on: FRSrequiresdisclosureofFVofINAFRS103

para10(needforrecogni?on):Asoftheacquisi?ondate,theacquirershallrecognise,separatelyfromgoodwill,theiden?fiableassets

acquired,theliabili?esassumedandanynon-controllinginterestinthe

acquireepara18(measurementprinciple):Theacquirershallmeasuretheiden?fiableassetsacquiredandtheliabili?esassumedattheir

acquisi?on-datefairvalues

Ques?onneeded:assessextentoffutureauditworkneededtosa?sfy

accuracyasser?onnetassets&goodwillfromacquisi?on


24/57

Poten?alManagementResponses:

ExternalOpinione.guseofProfessionalValuer ManagementOpinion:es?matesormarketvalue

Fairvaluehierarchyfrs107para27a:Thefairvaluehierarchyshallhavethefollowinglevels:

(a)quotedprices(unadusted)inac?vemarketsforiden?calassetsorliabili?es (Level1);

(b)inputsotherthanquotedpricesincludedwithinLevel1thatare

observable fortheassetorliability,eitherdirectly(ieasprices)orindirectly

(iederived fromprices)(Level2);and (c)inputsfortheassetorliabilitythatarenotbasedonobservablemarket

data (unobservableinputs)(Level3).


(VALUATION

OFINA

)


25/57

ImpactonAudit:

ExternalOpinione.guseofProfessionalValuerAuditortoevaluateExpertReport

SSA620para2Whenusingtheworkperformedbyanexpert,theauditorshouldobtainsufficientappropriateauditevidencethatsuchworkis

adequateforthepurposesoftheaudit

Ifdependable,lessauditworkneedstobedoneinthesubsequentyearofaudit

ManagementOpinion:es?matesormarketvalueAuditorhastoassessandtestforreasonableness


(VALUATION

OFINA

)


26/57

Q.WHATISTHEPERCENTAGEOFCOMPANYEXPECTED

TOBEACQUIRED

Ra?onaleforaskingques?on: Todetermineiftransac?onresultsin:

AssociateorSubsidiary(differentaccoun?ngrulesapply)

20%to50%: Associate(FRS28) >50%: Subsidiary(FRS27)

Acquisi?oninthiscase:likelytobesubsidiaryIsitfullyownedi)AuditortoassessdisclosureofNCIComponent

FRS27Para27: Minorityinterestsshallbepresentedintheconsolidatedbalance

sheetwithinequity,separatelyfromtheparentshareholdersequity.Minorityinterestsintheprofitorlossofthegroupshallalsobe

separatelydisclosed


27/57

ii)Needtoauditaccountstoensureelimina?onofintercompanytransac?ons

FRS27para20:Intragroupbalances,transac?ons,incomeandexpensesshallbeeliminatedinfull.

Increasedcomplexityifsubsidiarynotacquiredinfull Unrealisedprofitsfromupstreaminter-coytransac?onshasimpactonNCI

Possibleimpactonauditor:largerextentofsubstan?vetes?ng,tracingsalesinvoicestoseparateintercoinvoices

ImmediateAcquisi?onvsStepAcquisi?on

Muchgreatercomplexi?esinvolvedinstepacquisi?on MoredifficulttoassignNCI,keeptrackofInvestmentinSubsidiaryAccounttobeeliminated

Q.WHATISTHEPERCENTAGEOFCOMPANYEXPECTED

TOBEACQUIRED


28/57


PLANNEDACQUISITION

(2)

Impact on Audit @ Group Level &Consolidation


29/57

Q.WILLTHEFINANCIALYEARENDOFEKBECHANGED

Ra?onaleforaskingques?on: AssessCompliancewithFRS(correctperiodreported) Determiningwhichperiodtoauditforen?regroup EKhastocomplywithSingaporesCompanyActNeedforhavesameFYEforen??eswithinGroupClientneedstoapplyforwaiveriftheyareunabletochangeFYEofsubsidiaryinChina


30/57

Q.WILLTHEFINANCIALYEARENDOFEKBECHANGED

Managementsresponse(2op?ons):1. ChangeYearEndofparentofsubsidiary2. ApplyFRS27,para23

1stAugX1 1stOctX1 31stAugX1 31stOctX1

CK

EK


31/57

UNDERFRS27

1stAugX1 1stOctX1 31stAugX1

CK

EK

FRS27Para22: Thefinancialstatementsoftheparentanditssubsidiariesusedinthe

prepara?onoftheconsolidatedfinancialstatementsshallbepreparedasofthe

samedate.Whentheendofthereporngperiodoftheparentisdifferent

fromthatofasubsidiary,thesubsidiaryprepares,forconsolidaonpurposes,

addionalfinancialstatementsasofthesamedateasthefinancialstatements

oftheparentunlessitisimpraccabletodoso.

31stOctX1


32/57

UNDERFRS27

1stAugX1 1stOctX1 31stAugX1

CK

EK

FRS27Para23

When,inaccordancewithparagraph22,thefinancialstatementsofa

subsidiaryusedintheprepara?onofconsolidatedfinancialstatementsarepreparedasofadatedifferentfromthatoftheparentsfinancialstatements,adjustmentsshallbemadefortheeffectsofsignificanttransaconsoreventsthatoccurbetweenthatdateandthedateoftheparentsfinancialstatements .Inanycase,thedifferencebetweentheendofthereporngperiodofthesubsidiaryandthatoftheparentshallbenomorethanthreemonths.Thelengthoftherepor?ngperiodsandanydifferencebetweentheendsoftherepor?ngperiodsshallbethesamefromperiodtoperiod.

31stOctX12months


33/57

UNDERFRS27

1stSeptX0 1stNovX0 31stAugX1

CK

EK

31stOctX1

IfGrpCFOisunabletochangeFYEdates:EKhastoapplytoACRAforawaiver&prepares2setsofbooks

I. 1September20x0to31August20x1(forGroupConso)II. 1November20x0to31Oct20x1(Subsidiarysbooks)

Note:Adustmentsfor2monthsoftransac?onsAuditor:ToaudittheGroupcompaniesasattherelevant?me

periodsshown


34/57

Q.WILLTHESUBSIDIARYFOLLOWTHEPARENTS

PRESENTATION&FUNCTIONALCURRENCY

Ra?onaleforaskingques?on: Inherentriskofcurrenciesbeingdifferentinsubsidiaryandconsolidatedfinancialstatements

AssesscompliancewithFRS21(ForeignExchange)ConsolidatedGroupFShasmustbepresentedinacommoncurrencyPresenta?onCurrency

IfSubsidiaryisadop?ngadifferentfunc?onalcurrency,addi?onaladustments&disclosureshavetobemadein

audit


35/57

UNDERFRS21

Poten?alManagementResponse:

Inthiscase,likelyforsubsidiarysfunc?onalcurrencytodifferfromtheGroups.

Func?onalCurrencythecurrencyoftheprimaryeconomicenvironmentinwhichtheen?tyoperatesIN6

AccordingtoIN8:en?tydoesnothaveafreechoiceinfunc?onalcurrency

FRS21Para38: Whenagroupcontainsindividualen??eswithdifferentfunconalcurrencies,theresultsandfinancialposi?onofeachen?tyareexpressed

inacommoncurrencysothatconsolidatedfinancialstatementsmaybepresented.

TheGroupwillhavetopresentitsconsolidatedFSinitspresenta?oncurrency,

transla?ngthesubsidiarysaccountsbalancesandfiguresfromRMBtoSGD.


36/57

UNDERFRS21

FRS21Para23:GeneralTransla?onGuidelines Monetaryitemstranslatedusingclosingrates Non-monetaryitems(historicalcost)translatedusingexchangerateatdateofthetransac?on

Non-monetaryitems(fairvalue)translatedusingratesasatdatewhenfairvaluewasdetermined

FRS21Para39:Transla?onGuidelineswhenfunc?onalcurrencydiffersfrompresenta?oncurrency

Assets&liabili?estranslatedatclosingrateasatB/Sdate Incomeandexpensestranslatedatexchangeratesasatdatesofthe

transacon

Allresul?ngexchangedifferencesshallberecognisedasaseparatecomponentofequity


37/57

Q.WILLTHESUBSIDIARYFOLLOWTHEPARENTS

PRESENTATIONCURRENCY

ImpactonAudit: Designofauditprocedures:Transla?ontestsonexchangeratesappliedbyclientintransla?ngdifferentlineitems

AuditortoassesswhichratesdidclientuseYearendratevsHistoricalRateAuditproceduresdesign:ReasonablenessTest,Substan?vetes?ngontransac?ontransla?onrates(dependingonrisk)

Consolida?onAuditortoensurerequireddisclosuresaremade:FRS21Para45:Cannoteliminateinter-coybalanceswithoutshowingtheresultsofcurrencyfluctua?onsintheconsolidatedfinancialstatements

OthercurrencyrisksinvolvingRMBexposureinFootnotes


38/57

Q.MANAGEMENTSPLANSFORFUTURE

TRANSACTIONS

Ra?onaleforaskingques?on: Futureintercompanytransac?onsandbalanceshavetobeeliminated Complicatedarrangements&significantintragrouptransac?onswillleadtogreatercomplexityandtes?ngintheaudit

Leadsustonextissue:assessingproceduresandcontrolsinplacetoseparateinter-coyandexternaltransac?onse.g.separateinventorynumbering&records,dis?nctsetofsalesinvoicenumbers(internal&externalsales)


39/57

PotenalManagementResponses:

A)NoIntraGrouptransac?onsplanned B)OnlyIntraGrouptransac?ons C)IntraGroupTransac?onsmixedwithExternalTransac?ons

Inthiscase,subsidiaryisacquiredinorderforParentcompanytoexpandintoChinaHighlylikelytofaceissuesinOp?onCabove SalesofinventoryfromParenttoSubsidiary;Subsidiarytopurchase

otherinputsfromChinesesuppliers;Subsidiarytomakesalestocustomers

FRS27Para20 Intragroupbalances,transac?ons,incomeandexpensesshallbe

eliminatedinfull FRS27Para21 Profitsandlossesresul?ngfromintragrouptransac?onsthatare

recognisedinassets,suchasinventoryandfixedassets,areeliminatedinfull

Q. MANAGEMENTSPLANSFORFUTURE

TRANSACTIONS?


40/57

ImpactonAudit:

ComplexityofAudit NoIntraGrouporOnlyIntraGroupEasiertoaudit! Mixedtransac?ons:fromallovertheplaceLargerextentofauditprocedures!

Havetoconsider&designauditprocedures,suchas:i. Testofcontrolsforcentralizedaccoun?ngsystemsii. Testofdetailse.g.tracingsalesreportstointragroupsales

invoices&DeliveryOrders(separatelyfromexternalsales)

iii.

Agreeingintragroupsalesintheconsolida?onschedule


TRANSACTIONS


41/57

ImpactonAudit:(Needtocheckwithclientoncompa?bility/upgrading

ofinfosystems,inresponsetoacquisi?on)

RevisingAssessmentofControls,AuditPlanning Ifmanagementdoesindeedplantocarryoutcomplexintragrouptransac?onssuggestimprovementstoexis?ngcontrols

Poten?alrecommenda?onstomanagement:Separateinventorynumbering&recording,Usedifferentsetofsalesinvoicenumbersforintragroupsales

Worktowardsavoidinghavingtoapplyes?ma?onmethodinfutureaudits,sinceitisnotasaccurateinvaluingintercompany

balances&transac?ons

Increaseefficiency&effec?venessoffutureaudits!


TRANSACTIONS


42/57

Q.WHATWILLTHEGROUPSTRUCTUREBEAFTERTHE

ACQUISITION

Ra?onaleforaskingques?on: Highinherentriskpresentinhavingacomplexgroupstructure(egcircularownershipstructures)

Difficultyintrackingintragroupsales&balances Higherpoten?alformaterialmisstatementsinelimina?onsofintragrouptransac?ons

Greaterriskoffraudgoingundetectedduetooverlycomplexstructure

Frequentacquisi?ons,disposalorreorganiza?onsGreaterriskofmaterialmisstatementsinConsoFS


43/57


ACQUISITION

ImpactonAudit:

HigherinherentriskPoten?alforincreasedcomplexityinauditifgroupstructureiscomplex

Higherdetec?onriskOmissionofintragrouptransac?onsbeingrecorded

(Asearlier)toconveytoclientCFOontheneedtoimplementcontrolsandprocessesto: Trackintragrouptransac?onsseparately Monitoranynewintragrouprela?onships/dealings

NeedtoobtainanunderstandingofthecomponentauditorwithrespecttoSSA600Para19


44/57


ACQUISITION

SSA600Para19: Ifthegroupengagementteamplanstorequesta

componentauditortoperformworkonthefinancialinforma?onofacomponent,thegroupengagementteamshallobtainanunderstandingofthefollowing:.

Ifacomponentauditordoesnotmeet theindependencerequirementsthatarerelevanttothegroupaudit,orthegroupengagementteamhasseriousconcernsabouttheothermaerslistedinparagraph19(a)-(c),thegroupengagementteamshallobtainsufficientappropriateaudit

evidencerela?ngtothefinancialinforma?onofthecomponentwithoutreques?ngthatcomponentauditortoperformworkonthefinancialinforma?onofthatcomponent


45/57

Q.ARETHEACCOUNTINGPOLICIESOFEKDIFFERENT

FROMCKAFTERACQUISITION

Ra?onaleforaskingques?on: Comparability&consolidaonissues:auditorhastoensureconsistencyinaccoun?ngtreatmentsapplied(e.g.valua?onof

inventory,revenuerecogni?on)toconsolidateaccounts!

EnsureclientscompliancewithSingaporeaccoun?ngstandards Taxrelatedproblemsthatmightarise


46/57


47/57



ExamplesofkeydifferencesbetweenASBEandFRS ASBEallowsonlyacostmodeltocomputethevalueoffixedandintangibleassetswhiletheFRSallowsachoice

forrevalua?onmodel

FRSprovidesanop?ontoexpenseallborrowingcostswhileASBE(undercertaincircumstances),maintainthat

borrowingcostsshouldbecapitalised

ThisisnolongerthecaseunderFRS23cannotexpenseoffborrowingcosts(thisdifferencereferstotheoldstandards)

ASBEprohibitsreversingallimpairmentlossesbutFRSonlyprohibitsreversalofgoodwillimpairment


48/57



KeydifferencesbetweenASBEandFRS Presenta?onofFS ASBErestrictssomeaspectsofthestatementthatwouldbeallowedunderFRS

Expenseshavetobeanalysedby:Func?onforincomestatementpresenta?onDirectmethodforcashflowstatements


49/57



ImpactonAuditor Increaseinextentofworktobedone

Needtoassessmanagementsreconcilia?onofthedifferentaccoun?ngtreatmentapplied

Consolida?onistrickierneedtoestablishconsistencybeforesummingupfiguresofsubsidiary&group

Designofauditprocedures:Inquiryofmanagement/subsidiaryaccountantsspecificaccoun?ngtreatment/es?matesapplied


50/57


PLANNEDACQUISTION

(3)Audit on Subsidiary


51/57

Q.ISSUBSIDIARYREQUIREDTORELEASEAUDITED

FINANCIALSTATEMENTS

Ra?onaleforaskingques?on: Todetermineifaddi?onalauditworkhastobeperformedonDEKPs(our)partinthiscase,likelythatthesubsidiaryhasto

beaudited,unlessexempted

Ifaddi?onalauditworkhastobeperformedonourpart,arewesufficientlyqualifiedCompetentPossessrequired

exper7se

WouldDEKPhavetoauditaseparateFSofthesubsidiaryaswell

Wouldwehavetorelyontheworkofanotherauditor Canwerelyonthecomponentauditorswork


52/57


FINANCIALSTATEMENTS

Poten?alManagementResponse1:Subsidiaryisnotrequired&doesnotreleaseauditedFS

DEKPtoauditsubsidiaryifitisasignificantcomponentofGroup. Significantcomponentisdeterminedby:

IndividualfinancialsignificancetogroupAskManagement:whatisthesizeofthesubsidiaryE.g.Ifrevenueofsubsidiarycons?tuteslarge%ofGroupsRevenueSignificant

Specificnatureofcircumstances(ie.componentlikelytoincludesignificantrisksofmaterialmisstatements)

Contemplaterisksindesigningprocedures:Highrisksuselargersamplesintestofdetails.Lowrisksuseanaly?cs

IfEKcons?tutesasignificantcomponent,theauditofthesubsidiarymustbecarriedoutbygroupengagementteam


53/57

Implica?onsforAuditor:

Needtofindoutifwehavetheresourcesandcapabili?estohandletheauditofEKinChina

AssessworktobedoneforauditofEKanddeterminetheimplica?onsonauditfees

Arethereanyindependence/conflictofinterestissues IfDEKPisnotabletohandlethiscomponentaudit,

NeedtocommunicatethisinfotoCKConsiderpossibleexternalauditorforthiscomponent


FINANCIALSTATEMENTS


54/57


FINANCIALSTATEMENTS

Poten?alManagementResponse2:Yes,Subsidiaryisaudited AuditworkalreadydonebeforewereachtheauditatGroupConsolida?onlevel

Leadsusontonextques?on: WhoistobeappointedauditorofsubsidiaryforthenextFYE?

IfDEKP(us)needtoauditseparateFSforsubsidiaryAssessvariousconsidera?onsintakingupnewauditengagementeg.independence/relianceonclient

Seeourcapabili?esvscomplexityofauditCommunica?onwexis?ngauditorofpastaudits

IfgroupCFOretainsexis?ngauditor(thirdparty)canwerelyontheirwork


55/57


FINANCIALSTATEMENTS

Implica?onsforauditor:

Canwerelyontheworkofthecomponentauditor Doesthecomponentauditorexhibitcompliancewithethicalrequirements

Isthecomponentauditorindependent

Doesthecomponentauditorpossessadequateprofessionalcompetence

Consideringtheregulatoryenvironmentinwhichthecomponentauditoroperates,canwerelyontheaudited

workdone


56/57


FINANCIALSTATEMENTS

Implica?onsforauditor:

WillwebeabletocooperatewithcomponentauditorCommunica?ngmaterialitythresholdAdustfordifferencesinaccoun?ngtreatmentDiscussionsonsignificantbusinessac?vi?estoaudit

Ifcomponentauditorsworkisdeemedinsufficient,Wehavetodetermineaddi?onalproceduresthathavetobecarriedout

If component auditors work fulfills all the earlierrequirements mentioned

We can rely on their work for consolidation ofFS (Save the trouble!)


57/57

THEEND

Thank you for your attention (:

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ACC 3613 Grp Audit Presentation Edited]