(a)Hyacinth Co – internal controls and results of control testing(i)Audit planning and performance
4th paragraph :
It seems that the communications between Group and component auditors is not robust. The instructions given by Crocus & Co to the component auditors seem to lack detail, for example, Crocus & Co should be instructing the component auditors to carry out specific procedures on intra?group balances and transactions.
maam nowhere in the question there is nay sort of inkling that communication is not robust between group auditor and component auditor; so what evidence from the question according to you could have been used to deuce the above?
2nd doubt: 3rd paragrapph
Further, if these balances have not been appropriately reconciled, this could create significant issues on consolidation.
maam against what do we reconcile these intra grp amounts here in this case, when looking from individual FSs figures?
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MAGNOLIA GROUP M/J'17(A) Kaplan kit
Your 2nd question first:
"The tests of controls confirmed that intra-group transactions are not being separately
identified in the Group’s accounting system and reconciliations of amounts owed between the
subsidiaries are not performed."
Balances with each group company will be a receivable/payable in the receivables/payables ledger. But - it is not enough just to reconcile the balance from a supplier's perspective and "agree to differ" that the balances can be different due to timing differences. For group companies the timing differences must be accounted for somehow/somewhere. So if Group Co A says Group Co B owes $10,000 but Group Co B says it owes only $8,000 because it hadn't received $2,000 goods - you have to eliminate the whole of the $10k - which will partly cancelled against the $8k, with $2k included in inventory in consolidated FS (less PURP).
"The group audit manager has concluded on the audit working papers that “as intra-group
balances are cancelled on consolidation, this issue has no impact on the Group audit and NO FURTHER WORK IS NECESSARY”."
This is wrong - group audit instructions need to cater for the fact that there is a lack of identification/reconciliation of intra-group balances.
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