Engagements for Group Companies
Member Query
I have a current engagement with a company that is 100% Owner-Managed (Individual), with a single director and single shareholder. This Director made contact, and he wants to create a subsidiary company that is 100% managed by the parent company. He will also serve as the director of the subsidiary company. Because the parent now has 100% ownership of the subsidiary, Group Statements would be a requirement.
The PI Score is less than 100 for both companies. I would like to clarify two questions.
Would the subsidiary be considered owner-managed? (as the benefit/ownership flows via the parent company to the individual, sole shareholder/director)
As a Business Accountant in Practice am I allowed to draft Group Financials in this situation?
We need clarity to respond accordingly to this director.
Our Response
Based on the information you provided, I can share the following:
Subsidiary Classification
The subsidiary will not be classified as an owner-managed company. This is because the direct shareholder is another company (the holding company), and a company cannot serve as a director. Even if the ultimate individual shareholder is a director, this does not change the fact that the direct shareholder of the subsidiary is not a natural person. Therefore, the subsidiary does not meet the definition of an owner-managed entity.
Given that the PI score is below 100 and the company is not owner-managed, the subsidiary will require an Independent Review, in addition to the compilation of its Annual Financial Statements.
Holding Company and Consolidated Financial Statements
You are permitted to prepare the consolidated Annual Financial Statements. The holding company and the consolidated financial statements do not require an Independent Review. A compilation will be sufficient in this case, and you may proceed with compiling these financial statements.
However, please note that the subsidiary’s standalone Annual Financial Statements must undergo an Independent Review by a qualified Independent Reviewer.
