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For requirement a i) where they ask for the implications of the acquisition of Canaray company for the audit planning of the individual and consolidated financial statements of the CS group
The answer key provides the following implications for the consolidated financial statements of the CS group
“A particular issue is that canary co’s June year end is different from the rest of the group.In practice this will usually be changed soon after the company is acquired so we need to obtain evidenc to determine whether or not this has happened.this matter is absolutely crucial to the audit if the year end has not been changed,then additional procedures must be performed on canarys financial information so that its financial statements as at 31st July 20X2 can be consolidated.”
Doesn’t the last line mean that the auditors provide kind of an accounting function to enable cannary company’s financial statements to be consolidated with the group?are auditors allowed to do that?wont there be a threat to independence?
” care must be taken when performing analytical review at the group level as canarys figures are only included since the acquisition date and will not be comparable with the whole year figures of the rest of the group.”
How does performing analytical review at the group level help to assess the risk of material misstatement?
“Doesn’t the last line mean that the auditors provide kind of an accounting function to enable cannary company’s financial statements to be consolidated with the group?”
No, it means that the client parent entity will have to have made adjustments to the figures of the new subsidiary and the audit of those adjustments exceed the scope of the ‘normal’ audit
“How does performing analytical review at the group level help to assess the risk of material misstatement?”
This is the first time in your post that you have mentioned ‘risk’!
You presumably accept that the process and results of analytical review assist in the identification of risk of material misstatement. When performing analytical review procedures (comparisons with earlier periods) the acquisition of a subsidiary distorts comparability, year on year
The specific point being made about there being only the post-acquisition figures in the consolidated statement of profit or loss highlights the fact that, when calculating for example ‘days’ sales’, we’re only including a half(?) year’s worth of sales for the subsidiary but we shall have included the full amount of the subsidiary receivables in the statement of financial position
Thus the calculation of ‘receivables days’ for the group will be distorted and requires some sort of mental agility on the part of the auditor to make the calculated figures truly comparable
OK?
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