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Group Poodle has PBT of 2million (3 million prior year).
Sub Toy Co did not recognise provsion of 0.5million according to their local standards but it should be recognised on Group level.
Provided answer suggests that this mistatement if not adjusted would lead to qualified opinion but it is not pervasive.
It is 25%! of PBT and if you compare to last year the profits are now only half of prior year.
I would argue that profit is a very ‘sensitive’ item of P/L and the first thing that stakeholders look at. Omitting information ‘profit drop by 50%’ is not pervasive ?
I know that border between pervasive and not pervasive isn’t a clear cut but a professional judgement. But maybe there is some guidalines, quasi rules to follow when dealing with such judgement – pervasive or not.
Can you provide reasons why in this situation this is not pervasive please?
Many thanks!
What is the significance in this question of telling us that Toy Co is audited by a small local firm of auditors? I don’t see it used anywhere in the answer.
“These further audit procedures may be carried out by the component auditors, or by the audit team” appears to be a sort-of mention
The significance is that, if it were the audit firm themselves that had been appointed auditors, the issue would probably never have arisen. The examiner has tried to set a plausible scenario such that it is believable that this situation is now facing the group auditor.
I suppose that the question would be just as valid had the subsidiary been audited by the local office of the group audit firm – they too would presumably have ignored the matter on the grounds that local legislation requires provisions only where there is virtual certainty.
In summary, I don’t know! Maybe just to give the question a little bit more colour / believability?
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