Consolidation – Knowsia

PSAF – L2 – Q12.4- International Public Sector Accounting Standards

Explain the elements of control for consolidated financial reporting under IPSAS 35.

Question

(A) CONTROL

Explain the elements of control for consolidated financial reporting purposes. (B)

CONTROL

Discuss the circumstance in which a controlling entity does not have to prepare consolidated financial statements under IPSAS 35.

Answer

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Tags: Benefits, Consolidation, Control, Financial Reporting, Governance, IPSAS 35, Power, Public Sector
Level: Level 2

Topic: International Public Sector Accounting Standards

PSAF – L2 – Q12.3 – International public sector accounting standards

Prepare consolidated financial statements and notes for National Health Services and its hospitals for 2023 per IPSAS.

Question

GHANA HEALTH SERVICE

Statements of Financial Performance for the year ended 31st December 2023

	GHS	Kolebu	Saint H
	GHC’000	GHC’000	GHC’000
Revenue
Tax revenue	100,000
GoG receipt		2,000
Non-exchange revenue	100,000	2,000	3,000
Internally generated revenue	5,000	400	200
Exchange revenue	5,000	400	200
Total revenue	105,000	2,400	3,200
Expenses
Compensation for employees	40,000	600	500
Depreciation & amortisation	500	300	200
Goods and services	25,000	600	400
Finance costs	1,600	500	100
Total expenses	67,100	2,000	1,200
Surplus for the period	37,900	400	2,000

Statements of Financial Position for the year ended 31 December 2023

	GHS	Kolebu	Saint H
	GHC’000	GHC’000	GHC’000
Assets:
Cash & cash equivalent	25,000	800	500
Receivable: GHS		900
Receivable: Others	62,000	700	400
Inventories	12,000	300	200
Current assets	99,000	2,700	1,100
Property, plant & equipment	140,000	40,000	67,100
Investment- Saint H	60,000
Non-current assets	200,000	40,000	67,100
Total Asset	299,000	42,700	68,200
Liabilities
Payable: Kolebu	900
Payable others	60,000	8,000	3,000
Current borrowings	90,000	2,000
Current liabilities	150,900	10,000	3,000
Borrowing	45,000	10,000	5,000
Non-current liabilities	45,000	10,000	5,000
Total liabilities	195,900	20,000	8,000
Net asset (liabilities)	103,100	22,700	60,200

Net Asset/Equity:

	GHS	Kolebu	Saint H
	GHC’000	GHC’000	GHC’000
Contribution from owners			60,000
Accumulated Surplus (deficit)	103,100	22,700	200
Total Asset/Equity	103,100	22,700	60,200

Additional information
(i) The Ghana Health Services (GHS) is a government agency responsible for overseeing the health sector. The Kwadwo Teaching Hospital is funded through government appropriations and internally generated funds approved by Parliament. The GHS appoints most of the hospital’s board members on behalf of the government. All employees at Kwadwo receive their salaries from the Consolidated Fund.
(ii) On July 1, 2023, the GHS established the Blessed Hospital to provide high-quality healthcare services in the country. The GHS has fully funded the hospital’s operations through equity and debt guarantees and has also appointed the hospital’s governing board.
(iii) The appropriations to Kwadwo cover employee compensation and goods and services expenses at a ratio of 60% to 40%, respectively.
(iv) At the end of the reporting period, the GHS owed Kwadwo GHC900,000 for services rendered to its staff. The GHS has committed to paying this amount by the end of the second quarter of the following year.
(v) The separate financial statements of the GHS, Kwadwo, and Blessed Hospital are prepared using the same accounting policies.

Required:
Prepare in accordance with the relevant IPSASs:
(a) A consolidated statement of financial performance for the year ended 31 December 2023.
(b) A consolidated statement of financial position as at 31 December 2023.
(c) Note to the accounts.

Answer

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Tags: Consolidation, Control, Financial Performance, Financial Position, Financial Statements, Ghana Health Service, IPSAS 35, Public Sector
Level: Level 2

Topic: International Public Sector Accounting Standards

PSAF – L2 – Q12.2 – International public sector accounting standards

Assess if a local authority can apply IPSAS 35 to consolidate a housing association's activities.

Question

(a) A local authority has a policy that, where it holds land that is surplus to its requirements, consideration should be given to making the land available for affordable housing. The local authority establishes terms and conditions to ensure that the housing provided remains affordable and available to meet local housing needs. In accordance with this policy, the local authority sold part of a site to a housing association for GH₵10 million to provide 20 affordable homes. The remainder of the site was sold at open market value to a private developer. The contract between the authority and the housing association specifies what the land can be used for, the quality of housing developments, ongoing reporting and performance management requirements, the process for return of unused land, and dispute resolution. The land must be used in a manner consistent with the local authority’s policy for affordable housing. The agreement also has requirements regarding the housing association’s quality assurance and financial management processes. The housing association must demonstrate that it has the capacity and authority to undertake the development. It must also demonstrate the added value that can be achieved by joining the local authority’s resources with that of the housing association to address a need within a particular client group in a sustainable way. The Board of the housing association is appointed by the members of the housing association. The local authority does not have a representative on the Board.

Required:
Assess whether the local authority could apply IPSAS 35 Consolidated Financial Statement to the activities of the Housing Association.

(b) A national museum is governed by a board of trustees who are chosen by the government department responsible for funding the museum. The trustees have freedom to make decisions about the operation of the museum. The department has the power to appoint the majority of the museum’s trustees.

Required:
Discuss whether the government department has the power over the activities of the museum. (c)

In a recent workshop, a senior fellow of a civil society organisation asserts that the efforts of the Financial Controller to prepare consolidated financial statements of the authority is an exercise in futility. It further noted that the exercise is a waste of public resources.

Required:
Discuss the merit and demerit of the view of the Senior Fellow in light of IPSAS 35.

Answer

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Tags: Accountability, Consolidation, Control, Financial Reporting, Governance, Housing Association, IPSAS 35, Public Sector
Level: Level 2

Topic: International Public Sector Accounting Standards

PSAF – L2 – Q12.1 – International public sector accounting standards

Assess if Zamunda government controls Zamunda Transport Agency per IPSAS 35.

Question

Zamunda Transport Agency
(a) (i) A government has established a Zamunda Transport Agency. The Zamunda Transport Agency has assumed many responsibilities previously held by the government. The agency is responsible for the regional transportation network in the metro and regional areas of the jurisdiction, including public transport and major roads and bridges. The agency receives approximately 2/3rds of its funding for operations from a share of the government’s fuel taxes and general tax revenues. The remainder of the revenue for operations comes from non-government sources such as fares, advertising, and property development. The government contributes toward rapid transit projects. The agency has raised capital through significant borrowings that are guaranteed by the government. The agency is allowed to operate autonomously; however, the agency’s mandate is established by legislation, and the government sets the regional transportation vision. The government has the power to appoint and remove a majority of the members of the board of directors of the Zamunda Transport Agency. The government has never exercised this power. The agency’s board of directors is responsible for hiring, compensating, and monitoring the performance of the management and for providing oversight of the agency’s strategic planning, finances, major capital projects, and operations. The government has the power to veto operating and capital budgets, including fares and capital financing plans.

Required:
In line with IPSAS 35 Consolidated Financial Statements, assess whether the government has control over the Zamunda Transport Agency. (ii)Discuss the procedures you will follow in preparation of the financial statements, given that control has been established in question (a). (b)

Zamunda Transport Agency

(b) Explain the following terms used in the IPSAS:

(i) Equity method of accounting;

(ii) Joint arrangement;

(iii) Economic entity view of financial reporting; and

(iv) Associate.

Answer

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Tags: Consolidation, Consolidation Procedures, Financial Statements, IPSAS 35, Public Sector, Transport Agency
Level: Level 2

Topic: International Public Sector Accounting Standards

AAA – L3 – Q35 – Group Audits

Plan and manage the group audit of the Saffron Group, considering subsidiaries with separate auditors.

Question

The Saffron Group is an international business, made up of ten subsidiaries and a head office. You are the manager in charge at the firm undertaking the group audit, but there are separate local auditors for the Cinnamon subsidiary in Japan, the Fennel subsidiary in Thailand, and the Cardamom subsidiary in Greece. You are aware of the following information:

(1) Cardamom is a loss-making subsidiary, with losses at the current year end totalling C2.7 million. There are significant control problems, high levels of irrecoverable receivables, and 25% staff turnover. The local auditors have already stated their intention to give a qualified opinion for the year just ended because of the material issues found.

(2) Cinnamon is operating to a different financial year to that of the group as a whole, being October 20X8 rather than December 20X8.

(3) Shortly after the year end, in January 20X5, the Saffron Group announced the sale of Fennel for $25 million, and this disposal is currently underway.

(4) The Saffron Group is guaranteeing loans of approximately $10 million for its subsidiaries.

Required:

(a) Set out how you would plan and manage the group audit of the Saffron Group. (b) Consider the impact of each of the above issues on the group audit. (c) Explain the nature of the relationship between your firm and the auditors of the subsidiaries, making particular reference to the extent to which your firm may rely on the component auditors’ work and to the considerations involved where joint audits are conducted.

Answer

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Tags: Audit Planning, Component auditors, Consolidation, Financial Statements, Group audits
Level: Level 3

Topic: Audit Evidence, Group audits, Planning

Tag (SQ): Consolidation

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PSAF – L2 – Q12.4- International Public Sector Accounting Standards

Explain the elements of control for consolidated financial reporting under IPSAS 35.

PSAF – L2 – Q12.3 – International public sector accounting standards

Prepare consolidated financial statements and notes for National Health Services and its hospitals for 2023 per IPSAS.

PSAF – L2 – Q12.2 – International public sector accounting standards

Assess if a local authority can apply IPSAS 35 to consolidate a housing association's activities.

PSAF – L2 – Q12.1 – International public sector accounting standards

Assess if Zamunda government controls Zamunda Transport Agency per IPSAS 35.

AAA – L3 – Q35 – Group Audits

Plan and manage the group audit of the Saffron Group, considering subsidiaries with separate auditors.

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PSAF – L2 – Q12.4- International Public Sector Accounting Standards

Explain the elements of control for consolidated financial reporting under IPSAS 35.

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PSAF – L2 – Q12.3 – International public sector accounting standards

Prepare consolidated financial statements and notes for National Health Services and its hospitals for 2023 per IPSAS.

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PSAF – L2 – Q12.2 – International public sector accounting standards

Assess if a local authority can apply IPSAS 35 to consolidate a housing association's activities.

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PSAF – L2 – Q12.1 – International public sector accounting standards

Assess if Zamunda government controls Zamunda Transport Agency per IPSAS 35.

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AAA – L3 – Q35 – Group Audits

Plan and manage the group audit of the Saffron Group, considering subsidiaries with separate auditors.

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