Ind AS 110 defines control as existing only where an investor has power over an investee, exposure or rights to variable returns from its involvement, and the ability to use that power to affect the amount of those returns — all three elements have to be present, and the audit work on a consolidation starts by testing this assessment entity by entity, because a special purpose entity or a less-than-majority-owned investee can require consolidation (or a majority-owned one can be excluded) depending on how substantive the power actually is, not just the shareholding percentage.
Where the control assessment needs the most scrutiny
- Potential voting rights (convertible instruments, options) that are currently exercisable and substantive can give control even without majority ownership today.
- De facto control — where the investor holds less than a majority but is still the largest single shareholder with the remaining holdings widely dispersed — needs a documented assessment, not an assumption that control requires more than 50%.
- Structured entities and SPVs need the power/returns/link test applied on substance, since voting rights are often not the dominant mechanism of control in these structures.
- Removal rights held by other parties (substantive kick-out rights) can mean the investor with the largest stake still does not control the investee.
Testing the mechanics of consolidation once the perimeter is set
- 01Confirm uniform accounting policies across the groupA subsidiary's financial statements used for consolidation should be adjusted to the group's accounting policies before combination, not consolidated as reported locally.
- 02Trace intra-group eliminations line by lineIntra-group balances, transactions, income and expenses, including intra-group profit in inventory or fixed assets, should be eliminated in full — recompute a sample rather than accepting the consolidation working paper's elimination entries as given.
- 03Recompute non-controlling interestNCI should be measured based on present ownership interests at the proportionate share of net identifiable assets, or at fair value if that policy choice was made at acquisition, applied consistently thereafter.
- 04Confirm the reporting date and period are alignedWhere a subsidiary's reporting date differs from the parent's, additional financial information should be prepared as of the same date as the parent's, unless impracticable — and the gap should not exceed three months where that exception is used.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Audit workflow & automationSA 600: group audits, and the group auditor's responsibility for component auditors' workUsing another firm's work on a subsidiary doesn't transfer responsibility for the group opinion. SA 600 is explicit about what stays with the group auditor regardless.
- Related parties & disclosuresCommon-control entities: why they raise audit riskA promoter running several unlisted entities under common control creates a structure where money, not just transactions, can move without much friction. That is the risk to test for.
- Related parties & disclosuresIdentifying related parties: the audit starting pointA client declaration is a starting point for the related-party list, not evidence of it. How to build and cross-check the list independently.
- Audit workflow & automationSA 320: materiality in planning and performing an auditOverall materiality and performance materiality are not the same number with a safety margin added — they answer two different questions.
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