Auditing AASB 137

Auditing AASB 137
Module Number

Executive summary
Every organisation investing in the shares of other legal entity has to take care of the
accounting requirements attached to the investment done. The accounting of investment in
shares depends upon the ownership stake which an entity has in other legal entity. for the
ownership in the range of 20% to 50%, a significant influence of reporting entity is generated
which is required to be accounted as per the provisions of AASB 128 Investments in
Associates and Joint Ventures are followed. While, an ownership stake of 50% or more gives
a controlling stake to the reporting entity which has to be accounted as per the provisions of
AASB 3 Business Combinations. The reporting entity has to then present consolidated
financial statements as per AASB 10 Consolidated Financial Statements, AASB 127
Consolidated and Separate Financial Statements.

Table of Contents
Executive summary...............................................................................................................................1
Introduction...........................................................................................................................................1
Part A Response....................................................................................................................................1
Part B response......................................................................................................................................3
Manner in which intragroup transactions must be treated..................................................................3
Effect of elimination of intra group transactions upon the non-controlling Interest (NCI) calculation
in the subsidiary’s annual profit.........................................................................................................4
Example.............................................................................................................................................4
Part C response......................................................................................................................................5
What changes may be required to ensure that the consolidated financial statements are correctly
stated?................................................................................................................................................5
How would any required changes affect the disclosure requirements in the annual report?..............6
Conclusion.............................................................................................................................................6
References.............................................................................................................................................8

Introduction
In the provided report, the difference existent between the consolidation accounting
and equity accounting method is presented by highlighting the key difference areas. The
manner of treatment of intra group transactions, mainly the upstream transactions have been
considered. The effect of treatment of intra group transactions upon the accounting profit of
subsidiary and its apportionment in the non-controlling interests is analysed. The manner of
disclosure requirement required for non-controlling interests have also been highlighted,
along with the discussion of adjustments required to prepare the consolidated financial
statements. In the starting of this report, responses to the differences between the
consolidation method and the equity method are discussed separately. The description of the
consolidation accounting has been taken into consideration. After that, consolidation of
financial statements is done considering both the parent and subsidiary as a single economic
entity and their assets, incomes, expenses and liabilities are accumulated and application of
AASB 127 has been assessed to determine the intra group transactions and disclosure which
need to be made by the companies. Afterward, the accounting policies followed by the parent
and all of its subsidiaries has been assessed to determine whether they are following the
uniform, accounting policies or not. This helps company to avoid the possible mistakes and
issues in the reporting frameworks while preparing and filing the consolidated financial
details. This report reveals the key understanding on the AASB 127 and how company could
eliminate the intra- group transactions in its books of accounts. It helps company to eliminate
the recording issues in its financial statement.