Consolidation of Group Accounts and Auditing
In this series, we will discuss consolidation procedures, and desirable group-wide controls.
- EP Holding Co.
a. EP Holding Co. procures raw material from overseas, manufactures and packages products.
b. Sold exclusively to EP Distribution Co.
c. Rents space from EP Property for office and factory use.
- EP Distribution Co.
a. It procures finished goods from EP Holding Co. and keeps inventories of these items.
b. Distributes products in Asia including Singapore, Korea, and Taiwan.
Provides warehousing and logistics services.
c. Rents out office and factory space from EP Property.
- EP Property
a. EP Property owns and rents property in Singapore.
b. Sublets factory space and office spaces to EP Distribution Co. and EP Holding Co.
- Subsidiaries (Retail outlets)
Singapore, Korea and Taiwan have retail stores and sell finished goods to local end users.
Let’s examine the consolidation process
- All subsidiaries were incorporated as EP Holding having 100 percent direct equity interest (ordinary shares).
- All Entities under the Group have the same financial year end.
|Step 1||Obtain the financial statements, trial balances, for the parent and its subsidiaries; |
When the accounting policies of a subsidiary differ from those of the parent, adjustments are made during consolidation.
|Step 2||Translate the foreign subsidiary’s financial statement into the group’s currency. |
|Step 3||Set up working Excel sheet for parent and subsidiaries for; |
|Step 4||Eliminate inter-company indebtedness; |
Eliminate inter-company transactions:
Hence, the consolidated financial statements only reflect external transactions and balances.
|Step 5||Elimination of inter – company investment |
Note that only the parent company’s share capital is included if the share capital of the subsidiary have not changed.
|Step 6||Combine all assets, liabilities, equity, income, and expenses of the parent company and its subsidiaries into one entity.|
|Step 7||Reconciliations of the movements in: |
|Step 8||Final review of the consolidated accounts as a whole |
Prepare consolidated financial statements in accordance with the applicable financial reporting standards.
Other Consolidation adjustments to consider
Let look at desirable Group Wide Controls of the above Group of Companies
Group-wide controls may include a combination of the following:
|Accounting system|| |
|Review performance|| |
|Management’s risk assessment / fraud prevention|| |
|Intercompany transaction / balances|| |
|Group financial statements|| |
If you require assistance in navigating the Consolidation of your Group, contact us for a personalised session today.
Disclaimer: The information provided is general in nature and is not intended as professional advice. The information contained in this blog was collated as at October 2021 based on information available at that time.