Encountered errors in the audit of the consolidated accounts

This article is based on an interview with Frédéric Lepoutre in 2012. Frédéric is a specialist in consolidation, IFRS and corporate tax. We asked him a couple of questions about his experience with the errors that groups who consolidate encounter in the audit phase.


As an auditor, what are the 5 errors that you encounter the most at groups who consolidate?

I see 2 types of errors: technical errors and errors of value estimation. The most frequent errors that I have encountered are:

  • In an IFRS context, in the audit phase, we often experience discussions about the valuation of intangible assets, as this results in adjustments in the consolidated accounts.
  • A technical error that I see frequently, occurs in a context of internal cession with loss: the consolidator reverses the loss but in some cases, it should not be eliminated as the underlying asset is booked in the right value.
  • In case of a depreciation of the accounting value in the statutory accounts, in the financial fixed assets: an error encountered frequently is that the consolidator reverses this reduction in value in the consolidated accounts, without knowing or investigating if this value reduction does not need to be kept in the consolidated accounts (amortization of goodwill in conso).
  • The technical errors that I encounter are often also linked to a bad exploitation or a wrong parametrization of the software. Some consolidation adjustments are simply forgotten. This is often the case when the consolidation is not done with a professional consolidation tool.
  • Another source of errors are the adjustments. When we arrive in the audit phase and the accounts of the subsidiaries are insufficiently closed, this will generate lots of consolidation adjustments. The purpose is thus to have a good empowerment of the entities so that the closing is done with the correct figures and in the correct timeframe. In order to have the least number of consolidation adjustments, a good quality and filling in of the local closing figures is required.

How to prevent these errors?

Using a consolidation software application allows to prevent problems, however the software needs to be exploited in the right way, with a non-accounting tool (Excel) to frame the topics correctly. It is also important to anticipate as much as possible the difficult topics with the auditor, to avoid long discussions in the closing period.

More pragmatic, to avoid error situations, the following things are necessary:

  • The group needs to give clear instructions to the entities;
  • A good consolidation team, organized well, with a good frame of topics;
  • A local external audit (at entity level) of good quality.

All of this helps to gain time in the audit phase.

What was the biggest error that you have encountered and what was the impact?

We had one case in which a client had forgotten to register a goodwill amortization in consolidation. The entry was simple on itself but it had a big impact on an important figure, which changed a lot of numbers.

How can software help?

I would say that a software allows to secure the whole process. When a professional software is used, the auditors have a sort of guarantee on the quality of the financial figures.