Group-wide controls
Groupe-wide controls are controls designed, implemented, and maintained by group management over group financial reporting. Also known as entity level controls related to more than one component in an audit of group financial statements.
The group auditor will require an understanding of the group-wide controls relevant to the consolidation process, for example the instructions issued to components by management. The group auditor will need to assess the adequacy of such controls and their operating effectiveness in determining whether reliance can be placed upon those controls in determining the nature, extent and timing of procedures on the consolidation.
The types of audit procedures which could be performed include:
Confirming that figures taken into the consolidation have been accurately extracted from the financial statements of the components and that all components are included.
Evaluating the classifications of the components of the group – for example, whether the components have been correctly identified and treated as subsidiaries, associates or joint ventures.
Reviewing the disclosures necessary in the group financial statements, such as related party transactions and minority interests.
Investigating the treatment of any components which have a different financial year end or accounting policies from those of the rest of the group.
Gathering evidence appropriate to the specific consolidation adjustments made necessary by financial reporting standards, including, for example: the calculation of goodwill and its impairment review cancellation of intra-group balances and transactions provision for unrealised profits as a result of intra-group transactions fair value adjustments needed for assets and liabilities held by the component retranslation of financial statements of components denominated in a foreign currency.
Some of the evidence required to meet the above objectives will be gathered by the component auditor, and it is the group auditor’s responsibility to communicate to the component auditor the evidence which they are expected to gather. This communication ideally occurs at the audit planning stage.
Glossary. Office of the Auditor General of Canada. Retrieved from: https://www.oag-bvg.gc.ca/internet/methodology/performance-audit/manual/glossary.shtm
Group audits. ACCA Global. Retrieved from: https://www.accaglobal.com/hk/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles/group-audits.html