Financial Consolidation – NBC Institute

AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

Question

You are the Group Engagement Partner on the audit of the consolidated financial statements of GoodLife Investment Plc for the year ended 31 December 2017. GoodLife Investment Plc is a group of companies with subsidiaries in various countries across Africa. Based on the relative size of the components in terms of revenue, profit before tax, total assets, total liabilities, and net assets, you have identified some of the subsidiaries as significant components.

Component materiality has been determined as N22 million. In addition, from your preliminary risk assessment, you have identified some components that are likely to contain significant risk of material misstatements in the group financial statements. You plan to request component auditors to perform work on the financial information of the following components as at 31 December 2017.

Component ID	Component Name	Component Auditor	Country	Classification of Component	Likely Significant Risks of Material Misstatement
GIP	Goodlife Investment Plc	JPM & Co. (Chartered Accountants)	Nigeria	Significant component	– Fraudulent revenue recognition
					– Credit risk (allowance for loan impairment and impairment of other financial assets)
					– Valuation of financial instruments
GISAL	Goodlife Investments South Africa Limited	QSS Audit (Chartered Accountants)	South Africa	Significant component
GIL	Goodlife Insurance Limited	JPM & Co. (Chartered Accountants)	Nigeria	Insignificant component	– Valuation of insurance liabilities
GPRS	Goodlife Properties & Real Estate Services	Adibe & Co. (Chartered Accountants)	Nigeria	Significant component
GSL	Goodlife Stores Limited	Kwesi & Co. (Chartered Accountants)	Ghana	Insignificant component

Required:

a. Identify four factors that need to be considered by the group auditor in determining the use of component auditors to work on the financial information of these components. (4 Marks)

b. Discuss three principles to be applied when determining the type of work to be performed on each of the components above. (Link specific consideration to relevant components as shown above). (9 Marks)

c. List four contents of a Group Audit Instruction to a component auditor. (2 Marks)

Answer

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Tags: Audit Instructions, Component Auditors, Financial Consolidation, Group Audit, Material Misstatement
Level: Level 3

Topic: Group audit

PSAF – May 2017 – L2 – SB – Q4 – Treasury Management in the Public Sector

Identify benefits, challenges, and roles under the TSA scheme for MDAs and State Accountant-Generals.

Question

Treasury Single Account (TSA) is one of the financial policies being implemented by the Federal Government of Nigeria to consolidate all inflows from all Ministries, Departments, and Agencies (MDAs) by way of deposit into Commercial Banks, traceable into a single account at the Central Bank of Nigeria.

You are required to identify:

a. FIVE benefits associated with the financial policy. (5 Marks)

b. FIVE challenges inherent in operating the financial policy. (5 Marks)

c. FIVE roles and responsibilities of Ministries, Departments, and Agencies (MDAs) under the TSA scheme in Nigeria. (5 Marks)

d. FIVE roles and responsibilities of State Accountant-Generals under the TSA scheme in Nigeria (5 Marks)

Answer

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Tags: Central Bank, Financial Consolidation, Financial Policy Challenges, MDAs, Treasury Single Account
Level: Level 2

Topic: Treasury Management in the Public Sector
Series: MAY 2017

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

Question

You are an Audit Manager in Aboto & Associates, responsible for the audit of the Obina Group (the Group). You are reviewing the audit working papers for the consolidated financial statements relating to the year ended 31 March 2021. The Group specializes in the wholesale supply of steel plate and sheet metals. The draft consolidated financial statements recognize revenue of GH¢7,670 million (2020 – GH¢7,235 million), profit before taxation of GH¢55 million (2020 – GH¢80 million) and total assets of GH¢1,560 million (2020 – GH¢1,275 million). Aboto & Associates audits all of the individual company financial statements as well as the Group consolidated financial statements. The Audit Senior has brought the following matters, regarding a number of the Group’s companies, to your attention:

Fuga Plc
The Group purchased 40% of the share capital and voting rights in Fuga Plc on 1 May 2020. Fuga Plc is listed on the Ghana Alternative Market. The Group has also acquired options to purchase the remaining 60% of the issued shares at a 10% discount on the market value of the shares at the time of exercise. The options are exercisable in 18 months from 1 May 2021. Fuga Plc’s draft financial statements for the year ended 31 March 2021 reveals revenue of GH¢90 million and a loss before tax of GH¢12 million. The Group’s Finance Director has recognized Fuga Plc as an associate in this year’s group accounts and has included a loss before tax of GH¢4.4 million in the consolidated statement of profit or loss.
(7 marks)
Bavi Plc
Bavi Plc is a foreign subsidiary whose functional and presentational currency is the same as Obina Plc and the remainder of the Group. The subsidiary specializes in the production of stainless steel and holds a significant portfolio of forward commodity options to hedge against fluctuations in raw material prices. The local jurisdiction does not mandate the use of IFRS and the Audit Senior has noted that Bavi Plc follows local GAAP, whereby derivatives are disclosed in the notes to the financial statements but are not recognized as assets or liabilities in the statement of financial position. The disclosure notes include details of the maturity and exercise terms of the options and a directors’ valuation stating that they have a total fair value of GH¢6.1 million as at 31 March 2021. The disclosure notes state that all of the derivative contracts were entered into in the last three months of the reporting period and that they required no initial net investment. (6 marks)
Kontomo Plc
Kontomo Plc is a long-standing subsidiary in which the Group parent has a direct holding of 80% of the equity and voting rights. Audit work on revenue and receivables at Kontomo Plc has revealed sales of aluminum to its parent company in March 2021 amounting to GH¢77 million which have been recorded in the subsidiary’s financial statements. However, the audit procedures have identified that the receipt of aluminum was not recorded by the parent company until 2 April 2021. The group has made no adjustment for this transaction in the draft consolidated financial statements. Kontomo Plc makes a 10% profit margin on the sale of aluminum. (7 marks)

Required:
Comment on the matters to be considered and the audit evidence you should expect to find during your review of the Group audit working papers in respect of each of the issues raised above.

Answer

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Tags: Audit evidence, Financial Consolidation, Group Audits, ICAG
Level: Level 3

Topic: Audit evidence, The audit approach
Series: MAR 2023

AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

Question

Component ID	Component Name	Component Auditor	Country	Classification of Component	Likely Significant Risks of Material Misstatement
GIP	Goodlife Investment Plc	JPM & Co. (Chartered Accountants)	Nigeria	Significant component	– Fraudulent revenue recognition
					– Credit risk (allowance for loan impairment and impairment of other financial assets)
					– Valuation of financial instruments
GISAL	Goodlife Investments South Africa Limited	QSS Audit (Chartered Accountants)	South Africa	Significant component
GIL	Goodlife Insurance Limited	JPM & Co. (Chartered Accountants)	Nigeria	Insignificant component	– Valuation of insurance liabilities
GPRS	Goodlife Properties & Real Estate Services	Adibe & Co. (Chartered Accountants)	Nigeria	Significant component
GSL	Goodlife Stores Limited	Kwesi & Co. (Chartered Accountants)	Ghana	Insignificant component

Required:

a. Identify four factors that need to be considered by the group auditor in determining the use of component auditors to work on the financial information of these components. (4 Marks)

c. List four contents of a Group Audit Instruction to a component auditor. (2 Marks)

Answer

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Tags: Audit Instructions, Component Auditors, Financial Consolidation, Group Audit, Material Misstatement
Level: Level 3

Topic: Group audit

PSAF – May 2017 – L2 – SB – Q4 – Treasury Management in the Public Sector

Identify benefits, challenges, and roles under the TSA scheme for MDAs and State Accountant-Generals.

Question

You are required to identify:

a. FIVE benefits associated with the financial policy. (5 Marks)

b. FIVE challenges inherent in operating the financial policy. (5 Marks)

c. FIVE roles and responsibilities of Ministries, Departments, and Agencies (MDAs) under the TSA scheme in Nigeria. (5 Marks)

d. FIVE roles and responsibilities of State Accountant-Generals under the TSA scheme in Nigeria (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Central Bank, Financial Consolidation, Financial Policy Challenges, MDAs, Treasury Single Account
Level: Level 2

Topic: Treasury Management in the Public Sector
Series: MAY 2017

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

Question

Fuga Plc
The Group purchased 40% of the share capital and voting rights in Fuga Plc on 1 May 2020. Fuga Plc is listed on the Ghana Alternative Market. The Group has also acquired options to purchase the remaining 60% of the issued shares at a 10% discount on the market value of the shares at the time of exercise. The options are exercisable in 18 months from 1 May 2021. Fuga Plc’s draft financial statements for the year ended 31 March 2021 reveals revenue of GH¢90 million and a loss before tax of GH¢12 million. The Group’s Finance Director has recognized Fuga Plc as an associate in this year’s group accounts and has included a loss before tax of GH¢4.4 million in the consolidated statement of profit or loss.
(7 marks)
Bavi Plc
Bavi Plc is a foreign subsidiary whose functional and presentational currency is the same as Obina Plc and the remainder of the Group. The subsidiary specializes in the production of stainless steel and holds a significant portfolio of forward commodity options to hedge against fluctuations in raw material prices. The local jurisdiction does not mandate the use of IFRS and the Audit Senior has noted that Bavi Plc follows local GAAP, whereby derivatives are disclosed in the notes to the financial statements but are not recognized as assets or liabilities in the statement of financial position. The disclosure notes include details of the maturity and exercise terms of the options and a directors’ valuation stating that they have a total fair value of GH¢6.1 million as at 31 March 2021. The disclosure notes state that all of the derivative contracts were entered into in the last three months of the reporting period and that they required no initial net investment. (6 marks)
Kontomo Plc
Kontomo Plc is a long-standing subsidiary in which the Group parent has a direct holding of 80% of the equity and voting rights. Audit work on revenue and receivables at Kontomo Plc has revealed sales of aluminum to its parent company in March 2021 amounting to GH¢77 million which have been recorded in the subsidiary’s financial statements. However, the audit procedures have identified that the receipt of aluminum was not recorded by the parent company until 2 April 2021. The group has made no adjustment for this transaction in the draft consolidated financial statements. Kontomo Plc makes a 10% profit margin on the sale of aluminum. (7 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Financial Consolidation, Group Audits, ICAG
Level: Level 3

Topic: Audit evidence, The audit approach
Series: MAR 2023

Question Tag: Financial Consolidation

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AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

PSAF – May 2017 – L2 – SB – Q4 – Treasury Management in the Public Sector

Identify benefits, challenges, and roles under the TSA scheme for MDAs and State Accountant-Generals.

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

PSAF – May 2017 – L2 – SB – Q4 – Treasury Management in the Public Sector

Identify benefits, challenges, and roles under the TSA scheme for MDAs and State Accountant-Generals.

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

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Question Tag: Financial Consolidation

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AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

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PSAF – May 2017 – L2 – SB – Q4 – Treasury Management in the Public Sector

Identify benefits, challenges, and roles under the TSA scheme for MDAs and State Accountant-Generals.

You're reporting an error for "PSAF – May 2017 – L2 – SB – Q4 – Treasury Management in the Public Sector"

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

You're reporting an error for "AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach"

AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

You're reporting an error for "AAA – Nov 2018 – L3 – Q6 – Group Audits"

PSAF – May 2017 – L2 – SB – Q4 – Treasury Management in the Public Sector

Identify benefits, challenges, and roles under the TSA scheme for MDAs and State Accountant-Generals.

You're reporting an error for "PSAF – May 2017 – L2 – SB – Q4 – Treasury Management in the Public Sector"

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

You're reporting an error for "AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach"

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