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TOCs over latest acquisition

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › TOCs over latest acquisition

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by Kim Smith.
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  • October 24, 2021 at 1:35 am #638944
    Noah098
    Member
    • Topics: 935
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    ma’am is it right to state that the component auditor should perform detailed TOCs over a new acquisition as the group auditor will not have much idea about the control environment and processes of investee?

    My friend says that there’s no need for detailed TOCs because before acquisition thorough due diligence is done, through which group auditor has some idea about the control environment of the investee.

    Your thoughts ma’am?

    October 24, 2021 at 1:39 am #638945
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    And so, can it be said that parent co has no previous knowledge of its latest acquisition’s (of subsidiary)control environment and processes?

    October 24, 2021 at 8:19 am #638958
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6794
    • ☆☆☆☆☆

    You ask me these questions “can it be said ….” – I give an answer – and then your reply “ah but in xxx it states ….. “. It is a potential waste of time for both of us and confusion to other users of the forum if I have to provide a different answer because my first does not take account of the context. So please – you must give context to your questions.

    Taking your question at face value – as per your AA studies, TOCs are only ever performed when it is expedient to the conduct of the audit to rely on their operating effectiveness. So the component auditor who reports on the subsidiary’s own financial statements will determine this. I suggest that if a subsidiary is acquired very close to a financial year end, a wholly substantive approach to account balances in SoFP is likely to be the more effective.

    Where performed, TOCs are in addition to the risk assessment procedures carried out to obtain an understanding of the entity including its system of internal control – page 52 of the AA notes. These are AUDIT procedures.

    Are you confusing auditor’s perspective with the entity’s in your second post? I don’t understand it.

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