P.M. Q. 6 On Page No. 10.5

 sir, in this Q. how B Ltd. become subsidiary of A Ltd where only 10% Holding have By A Ltd. Over B Ltd. & This Question have no relevant point regarding control over board so how  we can remember this answer.

1 answer

Hello board control may be there even if you dint have substantial share holding, because of agreements between companies, agreement between shareholders, agreement between financiers / debenture holders trust / employee trust / technology partners  and company.
further in this question are not suppose to determine whether control exists or not, control exists is specified we simply have to go on check documents which proves control. following analysis of answer may help you in retention
Facts of the Case
In this case, A Ltd. holds only 10 percent of the voting power and control over the composition of the Board of Directors of B Ltd. In such a case, A Ltd. would be considered as a parent of B Ltd. and, therefore, it would consolidate B Ltd. in the consolidated financial statements as subsidiary.
Audit Procedure
(Obtain Understanding)
The auditor should make plans, among other things, for the understanding of accounting policies of the parent, subsidiaries, associates and joint ventures and determining and programming the nature, timing, and extent of the audit procedures to be performed etc.
(Control over Board)
The auditor should verify whether the parent controls the composition of the Board of Directors or corresponding governing body of any entity. There would be various means by which such kind of control can be obtained.
In this regard, the auditor may verify the Board’s minutes, shareholder agreements entered into by the parent, agreements with the entities to which the parent might have provided any technology or know how, enforcement of statute, as the case may be, etc.
The auditor should verify that the adjustments warranted by the relevant accounting standards have been made wherever required and have been properly authorized by the management of the parent. The preparation of consolidated financial statements gives rise to permanent consolidation adjustments and current period consolidation adjustments.
AS 18
Further, the duties of an auditor with regard to reporting of transactions with related parties as required by Accounting Standard 18 are given in SA 550 on Related Parties.
SA 550
As per SA 550 on, “Related Parties”, the auditor should review information provided by the management of the entity identifying the names of all known related parties. A person or other entity that has control or significant influence, directly or indirectly through one or more intermediaries, over the reporting entity are considered as Related Party.
Framing Opinion
In forming an opinion on the financial statements the auditor shall evaluate whether the identified related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the applicable financial reporting framework and whether the effects of the related party relationships and transactions prevent the financial statements from achieving true and fair presentation (for fair presentation frameworks); or cause the financial statements to be misleading (for compliance frameworks).


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