Ind AS 28 requires investments in associates (significant influence, generally presumed at 20% or more of voting power, rebuttable either way) and joint ventures to be accounted for using the equity method, under which the investment is initially recognised at cost and subsequently adjusted for the investor's share of the investee's post-acquisition profit or loss and other comprehensive income — the audit's core task is to recompute this adjustment independently each period, rather than accept the investee's own reported share as given, and to confirm significant influence genuinely exists where the holding is below 20% or is challenged at or above it.
What to test
- 01Test the significant influence assessment, not just the shareholding percentageRepresentation on the board, participation in policy-making, material transactions, interchange of managerial personnel, or provision of essential technical information can establish significant influence below 20%, or its absence can rebut the presumption above 20% — document which indicators actually apply.
- 02Obtain and test the investee's financial statements used for equity accountingWhere the investee's financial statements are unaudited, or not prepared under consistent accounting policies with the investor, additional procedures are needed before relying on the figures used to compute the investor's share.
- 03Recompute the elimination of unrealised profit on transactions with the investeeThe investor's share of unrealised profits and losses on transactions between the investor (or its subsidiaries) and the associate or joint venture must be eliminated against the carrying amount, not recognised in full.
- 04Test whether equity accounting should be suspendedOnce the carrying amount is reduced to zero by cumulative losses, further losses are recognised only to the extent the investor has incurred legal or constructive obligations or made payments on the investee's behalf — check the carrying amount was not driven negative without that specific additional obligation existing.
- 05Confirm impairment indicators trigger a full Ind AS 36 impairment test on the net investmentThe entire carrying amount of the investment, not a separate goodwill component, is tested for impairment as a single asset when an indicator exists.
Continuing to recognise a share of an associate's losses below a zero carrying amount, without evidence of an actual further funding obligation, overstates the liability side of the equity accounting and is a frequent control gap where the investee's financials arrive late and get posted without this check.
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 & disclosuresRelated-party transaction testing under AS 18 / Ind AS 24Testing related-party transactions means proving the population is complete before checking what management already disclosed.
- Audit workflow & automationSA 540: auditing accounting estimates, where judgment replaces a verifiable numberAn estimate can't be vouched to a source document the way an invoice can. SA 540 is about what replaces vouching when there's no single right answer to check against.
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