Question

Which accounts might be misstated on a consolidated financial statement level and why, when an intergroup transaction consisted of a sale of inventory?

Answer 1

The following accounts can be misstated in consolidated financial statements in case of intergroup sale of inventory:

1. Sales: Sales may not be appropriately disclosed i.e. not disclosed at sale to group company and might be considered as normal sales to unrelated party

2. Inventory: There might be issues in recording inventory i.e. double counting, etc.

3. Purchases: Purchases may not be appropriately disclosed i.e. not disclosed at purchase from a group company and might be considered as normal purchases from unrelated party

4. Intercompany Balances: The debtor / creditor relationship between group companies might not be appropriately classified i.e. these accounts may wrongfully be clubbed under normal debtors / creditors