ACC

3613 WEEK 9 TUTORIAL GROUP AUDIT

Sectional Group G3 Group Members Justin Teo Ker Wanling Chiu Weiqi Khong Xiangzheng Abdul Hakeem

PRESENTATION OUTLINE
(A) (B) (C)
Identify and explain any misstatements in DKs accounts.

Identify and explain any misstatements in the consolidation schedule

Meeting with Group CFO re Acquisition

ASSUMPTIONS
No taxes

Hence, no deferred tax implica?ons

CKs (parents) entries are all correct Consolida?on Schedule given by client

Consolidated from Trial Balance Because items not posted to RE yet Possibly more informa?ve data Prots not closed to Retained Earnings yet

(A) IDENTIFY AND EXPLAIN ANY MISSTATEMENTS IN DKS ACCOUNTS.

1. Need to record Management fee expense (accounMng & HR support) & resulMng payable

Record in DKs (subsidiarys) books: Dr Mgt Fee Expense (DK) $100k

Cr Cash (

Which Account to Credit depends on what the subsidiary has done: If subsidiary allocated expense to external expense, Cr Ext. Expense If subsidiary omiWed the entry, Cr Cash

CK Dr Revenue Cost of sale management fee expenses -external receivable payable inventory non-current asset bank investment in DK share capital retained earning loss on acquisition

Cr Dr 1,000,000

DK

Cr 2,000,000

400,000

600,000 100,000 100, 000 300,000 600,000 400,000

200,000

200,000 300,000

400,000

500,000 400,000 100,000

100,000 200,000

200,000 500,000

200,000 300,000

2,000,000

2,000,000

2,600,000

2,500,000

No adjustment to Cash: assume 100k reported is derived from actual year end balance (ascertained from bank confirmation response & bank statements/reconciliation)

(A) IDENTIFY AND EXPLAIN ANY MISSTATEMENTS IN DKS ACCOUNTS.

2. Wrong amount of interco sales of inventory recorded Assuming CKs books were correct Dr Inventory 100k Cr Payable to CK 100k
Reasonable to assume that CKs books, rather than DKs books correct? DKs ending inventory balance was at 500k 50k of inventory purchased from CK ( > 200k reported by DK) 2

CK Dr Revenue Cost of sale management fee expenses -external receivable payable inventory non-current asset bank investment in DK share capital retained earning loss on acquisition

Cr Dr 1,000,000

DK

Cr 2,000,000

400,000

600,000 100,000 100, 000 300,000 600,000 400,000

300,000

200,000 300,000

400,000

500,000 400,000 100,000

100,000 200,000

200,000 500,000

200,000 300,000

2,000,000

2,000,000

2,600,000

2,600,000

No adjustments to inventory: assume 500k reported is derived from actual year end balance (ascertained from stock count/ inventory system)

(B) IDENTIFY AND EXPLAIN ANY MISSTATEMENTS IN THE CONSOLIDATION SCHEDULE.

1. Eliminate intercompany sale (management fee) Dr Management Fee Income (CK) Cr Management Fee Expense (DK) 100K 100K

2. No Goodwill stated in consolidated account Dr Goodwill (BS) Cr Loss on GW (P&L) 200k 200k

CK Dr Revenue Cost of sale management fee expenses -external receivable payable inventory non-current asset bank investment in DK share capital retained earning Goodwill

Cr Dr 1,000,000

DK

Cr 2,000,000

Conso. Dr 300,000

Adjust Cr Dr

Group

Cr 2,700,000

400,000

100,000

1,000,000

600,000 100,000 100,000 300,000 600,000 400,000

300,000

100,000

200,000 300,000

500,000

100,000 200,000 100,000 200,000 200,000 2,600,000 900,000

300,000

700,000

600,000

400,000

500,000

900,000 400,000 300,000

500,000 400,000 100,000

200,000 300,000

200,000 500,000

200,000 300,000

200,000

2,000,000

900,000

2,000,000

2,600,000

3,900,000

3,900,000

(B) IDENTIFY AND EXPLAIN ANY MISSTATEMENTS IN THE CONSOLIDATION SCHEDULE.

3. Adjustments for wrong consolidated entries
What company did: Dr Revenue Cr Receivables 300k 300k

Correc?ng entry to reverse wrong entry: Dr Receivables 300k Cr Revenue 300k

(B) IDENTIFY AND EXPLAIN ANY MISSTATEMENTS IN THE CONSOLIDATION SCHEDULE.

4. Eliminate Interco Balances Dr Payables Cr Receivables 300k 300k

CK Dr Revenue Cost of sale management fee expenses -external receivable payable inventory non-current asset bank investment in DK share capital retained earning Goodwill

Cr Dr 1,000,000

DK

Cr 2,000,000

Conso. Dr

Adjust Cr Dr

Group

Cr 3,000,000

400,000

-
100,000

1,000,000 100,000

600,000 100,000 100,000 300,000 600,000 400,000

300,000

200,000 300,000

300,000

300,000

500,000 600,000

400,000

400,000

500,000

900,000 400,000 300,000

500,000 400,000 100,000

100,000 200,000

100,000 200,000 200,000 2,600,000 900,000

200,000 300,000

200,000 500,000

200,000 300,000

200,000

2,000,000

900,000

2,000,000

2,600,000

3,900,000

3,900,000

5. Eliminate Unrealised Prots

Prot earned by parent from interco sale (as in parents books) (Interco Sales/ Revenue) x (Revenue Cost of Sales) = (300k/ 1000k) x (1000k- 400k) = 180k Inventory Purchased from CK: 300k. Out of this 300k inventory, 250k was in the year end balance. Unrealised Prot = (250k/300k) x 180k = 150k Conso JE: Dr Sales Revenue Cr Inventory Cr COGS

300k 150k 150k

CK Dr Revenue Cost of sale management fee expenses -external receivable payable inventory non-current asset bank investment in DK share capital retained earning Goodwill

Cr Dr 1,000,000

DK

Cr 2,000,000

Conso. Dr 300,000

Adjust Cr Dr

Group

Cr 2,700,000

400,000

150,000 100,000

850,000

600,000 100,000 100,000 300,000 600,000 400,000

300,000

100,000

200,000 300,000

500,000

300,000

300,000

400,000

600,000

400,000

150,000

750,000 400,000 300,000 500,000

500,000 400,000 100,000

100,000 200,000

100,000 200,000 200,000 2,600,000 1,200,000

200,000 300,000

200,000 500,000

200,000 300,000

2,000,000

1,200,000

2,000,000

2,600,000

200,000 3,600,000

3,600,000

Corrected ConsolidaMon Schedule

CK Dr Revenue Cost of sale management fee expenses -external receivable payable inventory non-current asset bank investment in DK share capital retained earning Goodwill

Cr Dr 1,000,000

DK

Cr 2,000,000

Conso. Dr 300,000

Adjust Cr Dr

Group

Cr 2,700,000

400,000

150,000 100,000

850,000

600,000 100,000 100,000 300,000 600,000 400,000

300,000

100,000

200,000 300,000

500,000

300,000

300,000

400,000

600,000

400,000

150,000

750,000 400,000 300,000 500,000

500,000 400,000 100,000

100,000 200,000

100,000 200,000 200,000 2,600,000 1,200,000

200,000 300,000

200,000 500,000

200,000 300,000

2,000,000

1,200,000

2,000,000

2,600,000

200,000 3,600,000

3,600,000

(C)

Accounting for acquisition Issues affecting current audit at group level

Qns: Consider the matters that planned acquisition of EK might have an impact on your audit of the CK Group for the year ending 31 August 2011. These matters should be organized as questions you would like to raise with the management of CK. Be prepared to explain to CK management the rationale of these questions.

MEETING WITH CFO TO DISCUSS PLANNED ACQUISITION

(1) (2) (3) Auditing Clients recording of transaction Impact on Audit @ Group Level & Consolidation Audit on Subsidiary

AUDITOR
Rationale Impact on Audit

MANAGEMENT
Managements Response

MEETING WITH CFO TO DISCUSS PLANNED ACQUISITION

(1)

Auditing Clients recording of transaction Checking clients elimination of investment in subsidiary

Q. HOW IS THE ACQUISITION CONSIDERATION TO BE STRUCTURED?

Ra?onale for asking ques?on:

Auditor (Us) needs to determine: If investment of subsidiary account is accurately stated The design of audit procedures for the audit of the acquisi?on transac?on Complexity involved in the audit Do we need nancial/ valua?on exper?se? Need to assess management es?mates/ inputs?

Q. HOW IS THE ACQUISITION CONSIDERATION TO BE STRUCTURED?

Managements Response
Considera?on Method: Cash vs Shares

Management would most likely be unwilling to disclose considera?on amount ?ll aier acquisi?on Unlikely that share acquisi?on is used in this case Both acquirer & target are Pte Ltd companies

When is Considera?on paid?

Upfront, Con?ngent or Deferred

Q. HOW IS THE ACQUISITION CONSIDERATION TO BE STRUCTURED?

Implica?on for Auditor: Considera?on Method: Cash vs Shares Audit Procedures straighjorward for Cash Acquisi?on

Diculty in obtaining fair value of acquirers shares Is Market value easy available? CK is a Private Company no available market price

Q. HOW IS THE ACQUISITION CONSIDERATION TO BE STRUCTURED?

Implica?on for Auditor When is Considera?on paid? Upfront: Best for Auditor! Look at Contract terms Deferred: Aside from Contract terms (amount & ?ming), Assess reasonableness of Management discount rates & the inputs used in the calcula?on of WACC

ConMngent: On top of Contract terms & discount rates, Assess reasonableness of Management probability projec?ons (eg by projec?ng historical trends, uctua?ons analysis, scenario planning)

Q. HOW IS THE COMPANY GOING TO VALUE THE ACQUISITION? (VALUATION OF INA)

Ra?onale for asking ques?on: FRS requires disclosure of FV of INA FRS 103 para 10 (need for recogni?on): As of the acquisi?on date, the acquirer shall recognise, separately from goodwill, the iden?able assets acquired, the liabili?es assumed and any non-controlling interest in the acquiree para 18 (measurement principle): The acquirer shall measure the iden?able assets acquired and the liabili?es assumed at their acquisi?on-date fair values

Ques?on needed: assess extent of future audit work needed to sa?sfy accuracy asser?on net assets & goodwill from acquisi?on

Q. HOW IS THE COMPANY GOING TO VALUE THE ACQUISITION? (VALUATION OF INA)

Poten?al Management Responses: External Opinion e.g use of Professional Valuer Management Opinion: es?mates or market value

Fair value hierarchy frs 107 para 27a: The fair value hierarchy shall have the following levels: (a) quoted prices (unadjusted) in ac?ve markets for iden?cal assets or

liabili?es (Level 1); (b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices) (Level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

Q. HOW IS THE COMPANY GOING TO VALUE THE ACQUISITION? (VALUATION OF INA)

Impact on Audit: External Opinion e.g use of Professional Valuer Auditor to evaluate Expert Report SSA 620 para 2 When using the work performed by an expert, the auditor should obtain sucient appropriate audit evidence that such work is adequate for the purposes of the audit If dependable, less audit work needs to be done in the subsequent year of audit Management Opinion: es?mates or market value Auditor has to assess and test for reasonableness

Q. WHAT IS THE PERCENTAGE OF COMPANY EXPECTED TO BE ACQUIRED?

Ra?onale for asking ques?on: To determine if transac?on results in:

Associate or Subsidiary (dierent accoun?ng rules apply)

20% to 50% : >50%: Associate (FRS 28) Subsidiary (FRS 27)

Acquisi?on in this case: likely to be subsidiary Is it fully owned? i) Auditor to assess disclosure of NCI Component FRS 27 Para 27: Minority interests shall be presented in the consolidated balance sheet within equity, separately from the parent shareholders equity. Minority interests in the prot or loss of the group shall also be separately disclosed

Q. WHAT IS THE PERCENTAGE OF COMPANY EXPECTED TO BE ACQUIRED?

ii) Need to audit accounts to ensure elimina?on of intercompany transac?ons FRS 27 para 20: Intragroup balances, transac?ons, income and expenses shall be eliminated in full. Increased complexity if subsidiary not acquired in full Unrealised prots from upstream inter-coy transac?ons has impact on NCI Possible impact on auditor: larger extent of substan?ve tes?ng, tracing sales invoices to separate interco invoices Immediate Acquisi?on vs Step Acquisi?on?

Much greater complexi?es involved in step acquisi?on More dicult to assign NCI, keep track of Investment in Subsidiary Account to be eliminated

MEETING WITH CFO TO DISCUSS PLANNED ACQUISITION

(2)

Impact on Audit @ Group Level & Consolidation

Q. WILL THE FINANCIAL YEAR END OF EK BE CHANGED?

Ra?onale for asking ques?on:

Assess Compliance with FRS (correct period reported) Determining which period to audit for en?re group EK has to comply with Singapores Company Act Need for have same FYE for en??es within Group

Client needs to apply for waiver if they are unable to change FYE of subsidiary in China

Q. WILL THE FINANCIAL YEAR END OF EK BE CHANGED?

Managements response (2 op?ons): 1. 2.

Change Year End of parent of subsidiary Apply FRS 27, para 23

CK EK

1st Aug X1 1st Oct X1

31st Aug X1

31st Oct X1

UNDER FRS 27

FRS 27 Para 22:

The nancial statements of the parent and its subsidiaries used in the prepara?on of the consolidated nancial statements shall be prepared as of the same date. When the end of the reporMng period of the parent is dierent from that of a subsidiary, the subsidiary prepares, for consolidaMon purposes, addiMonal nancial statements as of the same date as the nancial statements of the parent unless it is impracMcable to do so. CK EK

1st Aug X1 1st Oct X1

31st Aug X1

31st Oct X1

UNDER FRS 27
FRS 27 Para 23 When, in accordance with paragraph 22, the nancial statements of a subsidiary used in the prepara?on of consolidated nancial statements are prepared as of a date dierent from that of the parents nancial statements, adjustments shall be made for the eects of signicant transacMons or events that occur between that date and the date of the parents nancial statements. In any case, the dierence between the end of the reporMng period of the subsidiary and that of the parent shall be no more than three months. The length of the repor?ng periods and any dierence between the ends of the repor?ng periods shall be the same from period to period.

CK EK

2 months 1st Aug X1 1st Oct X1

31st Aug X1

31st Oct X1

UNDER FRS 27
CK EK

1st Sept X0 1st Nov X0

31st Aug X1

31st Oct X1

If Grp CFO is unable to change FYE dates:

EK has to apply to ACRA for a waiver & prepares 2 sets of books I. 1 September 20x0 to 31 August 20x1 (for Group Conso) II. 1 November 20x0 to 31 Oct 20x1 (Subsidiarys books) Note: Adjustments for 2 months of transac?ons Auditor: To audit the Group companies as at the relevant ?me periods shown

Q. WILL THE SUBSIDIARY FOLLOW THE PARENTS PRESENTATION & FUNCTIONAL CURRENCY?
Ra?onale for asking ques?on:

Inherent risk of currencies being dierent in subsidiary and consolidated nancial statements Assess compliance with FRS 21 ( Foreign Exchange) Consolidated Group FS has must be presented in a common currency Presenta?on Currency If Subsidiary is adop?ng a dierent func?onal currency, addi?onal adjustments & disclosures have to be made in audit

UNDER FRS 21
Poten?al Management Response:

In this case, likely for subsidiarys func?onal currency to dier from the Groups. Func?onal Currency the currency of the primary economic environment in which the en?ty operates IN6 According to IN8: en?ty does not have a free choice in func?onal currency FRS 21 Para 38: When a group contains individual en??es with dierent funcMonal currencies, the results and nancial posi?on of each en?ty are expressed in a common currency so that consolidated nancial statements may be presented.

The Group will have to present its consolidated FS in its presenta?on currency, transla?ng the subsidiarys accounts balances and gures from RMB to SGD.

UNDER FRS 21

FRS 21 Para 23: General Transla?on Guidelines Monetary items translated using closing rates Non-monetary items (historical cost) translated using exchange rate at date of the transac?on Non-monetary items (fair value) translated using rates as at date when fair value was determined FRS 21 Para 39: Transla?on Guidelines when func?onal currency diers from presenta?on currency Assets & liabili?es translated at closing rate as at B/S date Income and expenses translated at exchange rates as at dates of the transacMon All resul?ng exchange dierences shall be recognised as a separate component of equity

Q. WILL THE SUBSIDIARY FOLLOW THE PARENTS PRESENTATION CURRENCY?

Impact on Audit:

Design of audit procedures: Transla?on tests on exchange rates applied by client in transla?ng dierent line items Auditor to assess which rates did client use Year end rate vs Historical Rate Audit procedures design: Reasonableness Test, Substan?ve tes?ng on transac?on transla?on rates (depending on risk) Consolida?on Auditor to ensure required disclosures are made:

FRS 21 Para 45: Cannot eliminate inter-coy balances without showing the results of currency uctua?ons in the consolidated nancial statements Other currency risks involving RMB exposure in Footnotes

Q. MANAGEMENTS PLANS FOR FUTURE TRANSACTIONS?

Ra?onale for asking ques?on:

Future intercompany transac?ons and balances have to be eliminated Complicated arrangements & signicant intra group transac?ons will lead to greater complexity and tes?ng in the audit Leads us to next issue: assessing procedures and controls in place to separate inter-coy and external transac?ons e.g. separate inventory numbering & records, dis?nct set of sales invoice numbers (internal & external sales)

Q. MANAGEMENTS PLANS FOR FUTURE TRANSACTIONS?

PotenMal Management Responses: A)No Intra Group transac?ons planned B) Only Intra Group transac?ons C) Intra Group Transac?ons mixed with External Transac?ons In this case, subsidiary is acquired in order for Parent company to expand into China Highly likely to face issues in Op?on C above

Sales of inventory from Parent to Subsidiary; Subsidiary to purchase other inputs from Chinese suppliers; Subsidiary to make sales to customers

FRS 27 Para 20 Intragroup balances, transac?ons, income and expenses shall be eliminated in full FRS 27 Para 21 Prots and losses resul?ng from intragroup transac?ons that are recognised in assets, such as inventory and xed assets, are eliminated in full

Q. MANAGEMENTS PLANS FOR FUTURE TRANSACTIONS?

Impact on Audit: Complexity of Audit No Intra Group or Only Intra Group Easier to audit! Mixed transac?ons: from all over the place Larger extent of audit procedures! Have to consider & design audit procedures, such as: i. Test of controls for centralized accoun?ng systems
ii.

iii.

Test of details e.g. tracing sales reports to intra group sales invoices & Delivery Orders (separately from external sales) Agreeing intra group sales in the consolida?on schedule

Q. MANAGEMENTS PLANS FOR FUTURE TRANSACTIONS?

Impact on Audit: (Need to check with client on compa?bility/ upgrading of info systems, in response to acquisi?on) Revising Assessment of Controls, Audit Planning If management does indeed plan to carry out complex intra group transac?ons suggest improvements to exis?ng controls Poten?al recommenda?ons to management: Separate inventory numbering & recording, Use dierent set of sales invoice numbers for intra group sales Work towards avoiding having to apply es?ma?on method in future audits, since it is not as accurate in valuing intercompany balances & transac?ons Increase eciency & eec?veness of future audits!

Q. WHAT WILL THE GROUP STRUCTURE BE AFTER THE ACQUISITION?

Ra?onale for asking ques?on:

High inherent risk present in having a complex group structure (eg circular ownership structures) Diculty in tracking intra group sales & balances Higher poten?al for material misstatements in elimina?ons of intra group transac?ons Greater risk of fraud going undetected due to overly complex structure Frequent acquisi?ons, disposal or reorganiza?ons Greater risk of material misstatements in Conso FS

Q. WHAT WILL THE GROUP STRUCTURE BE AFTER THE ACQUISITION?

Impact on Audit: Higher inherent risk Poten?al for increased complexity in audit if group structure is complex
Higher detec?on risk Omission of intra group transac?ons

being recorded

(As earlier) to convey to client CFO on the need to implement

controls and processes to:

Track intra group transac?ons separately Monitor any new intra group rela?onships/ dealings

Need to obtain an understanding of the component auditor with

respect to SSA 600 Para 19

Q. WHAT WILL THE GROUP STRUCTURE BE AFTER THE ACQUISITION?

SSA 600 Para 19:

If the group engagement team plans to request a component auditor to perform work on the nancial informa?on of a component, the group engagement team shall obtain an understanding of the following: . If a component auditor does not meet the independence requirements that are relevant to the group audit, or the group engagement team has serious concerns about the other mafers listed in paragraph 19(a)-(c), the group engagement team shall obtain sucient appropriate audit evidence rela?ng to the nancial informa?on of the component without reques?ng that component auditor to perform work on the nancial informa?on of that component

Q. ARE THE ACCOUNTING POLICIES OF EK DIFFERENT FROM CK AFTER ACQUISITION?

Ra?onale for asking ques?on:

Comparability & consolidaMon issues: auditor has to ensure consistency in accoun?ng treatments applied (e.g. valua?on of inventory, revenue recogni?on) to consolidate accounts! Ensure clients compliance with Singapore accoun?ng standards Tax related problems that might arise

Q. ARE THE ACCOUNTING POLICIES OF EK DIFFERENT FROM CK AFTER ACQUISITION?

Potential

Management Response: YES, DIFFERENT!

For purely reporting purposes in China: EK has to prepare FS according to Accounting Standards for Business Enterprises (ASBE) However, FRS 27 Para 25: if a member of the group uses accounting policies other than those adopted in the consolidated financial statements.. Appropriate adjustments are to be made

Q. ARE THE ACCOUNTING POLICIES OF EK DIFFERENT FROM CK AFTER ACQUISITION?

Examples of key dierences between ASBE and FRS

ASBE allows only a cost model to compute the value of xed and intangible assets while the FRS allows a choice for revalua?on model FRS provides an op?on to expense all borrowing costs while ASBE (under certain circumstances), maintain that borrowing costs should be capitalised

This is no longer the case under FRS 23 cannot expense o borrowing costs (this dierence refers to the old standards)

ASBE prohibits reversing all impairment losses but FRS only prohibits reversal of goodwill impairment

Q. ARE THE ACCOUNTING POLICIES OF EK DIFFERENT FROM CK AFTER ACQUISITION?

Key dierences between ASBE and FRS

Presenta?on of FS ASBE restricts some aspects of the statement that would be allowed under FRS Expenses have to be analysed by: Func?on for income statement presenta?on Direct method for cash ow statements

Q. ARE THE ACCOUNTING POLICIES OF EK DIFFERENT FROM CK AFTER ACQUISITION?

Impact on Auditor

Increase in extent of work to be done Need to assess managements reconcilia?on of the dierent accoun?ng treatment applied Consolida?on is trickier need to establish consistency before summing up gures of subsidiary & group Design of audit procedures: Inquiry of management/ subsidiary accountants specic accoun?ng treatment/es?mates applied

MEETING WITH CFO TO DISCUSS PLANNED ACQUISTION

(3)

Audit on Subsidiary

Q. IS SUBSIDIARY REQUIRED TO RELEASE AUDITED FINANCIAL STATEMENTS?

Ra?onale for asking ques?on:

To determine if addi?onal audit work has to be performed on DEKPs (our) part in this case, likely that the subsidiary has to be audited, unless exempted If addi?onal audit work has to be performed on our part, are we suciently qualied? Competent? Possess required exper7se? Would DEKP have to audit a separate FS of the subsidiary as well? Would we have to rely on the work of another auditor? Can we rely on the component auditors work?

Q. IS SUBSIDIARY REQUIRED TO RELEASE AUDITED FINANCIAL STATEMENTS?

Poten?al Management Response 1: Subsidiary is not required &

does not release audited FS DEKP to audit subsidiary if it is a signicant component of Group. Signicant component is determined by: Individual nancial signicance to group

Ask Management: what is the size of the subsidiary? E.g. If revenue of subsidiary cons?tutes large % of Groups Revenue Signicant

Specic nature of circumstances (ie. component likely to include signicant risks of material misstatements) Contemplate risks in designing procedures: High risks use larger samples in test of details. Low risks use analy?cs If EK cons?tutes a signicant component, the audit of the subsidiary must be carried out by group engagement team

Q. IS SUBSIDIARY REQUIRED TO RELEASE AUDITED FINANCIAL STATEMENTS?

Implica?ons for Auditor: Need to nd out if we have the resources and capabili?es to handle the audit of EK in China Assess work to be done for audit of EK and determine the implica?ons on audit fees Are there any independence/conict of interest issues? If DEKP is not able to handle this component audit, Need to communicate this info to CK Consider possible external auditor for this component

Q. IS SUBSIDIARY REQUIRED TO RELEASE AUDITED FINANCIAL STATEMENTS?

Poten?al Management Response 2: Yes, Subsidiary is audited

Audit work already done before we reach the audit at Group Consolida?on level Leads us onto next ques?on: Who is to be appointed auditor of subsidiary for the next FYE? If DEKP (us) need to audit separate FS for subsidiary Assess various considera?ons in taking up new audit engagement eg. independence/ reliance on client See our capabili?es vs complexity of audit Communica?on w exis?ng auditor of past audits If group CFO retains exis?ng auditor (third party) can we rely on their work?

Q. IS SUBSIDIARY REQUIRED TO RELEASE AUDITED FINANCIAL STATEMENTS?

Implica?ons for auditor: Can we rely on the work of the component auditor?

Does the component auditor exhibit compliance with ethical requirements? Is the component auditor independent? Does the component auditor possess adequate professional competence? Considering the regulatory environment in which the component auditor operates, can we rely on the audited work done?

Q. IS SUBSIDIARY REQUIRED TO RELEASE AUDITED FINANCIAL STATEMENTS?

Implica?ons for auditor: Will we be able to cooperate with component auditor? Communica?ng materiality threshold Adjust for dierences in accoun?ng treatment Discussions on signicant business ac?vi?es to audit If component auditors work is deemed insucient, We have to determine addi?onal procedures that have to be carried out If component auditors work fulfills all the earlier requirements mentioned We can rely on their work for consolidation of FS (Save the trouble!)

THE END
Thank you for your attention (: