A holding company has decided to carry its wholly owned subsidiary companies on the balance sheet using the equity method.The type of audit report required is ________.

Question

Quizplus · Accepted Answer

The equity method is not appropriate for a parent company to use in accounting for its wholly owned subsidiaries in its consolidated financial statements. The correct method is consolidation, not the equity method. Using the incorrect accounting method would lead to a misrepresentation of the financial position and performance of the group, which is a departure from Generally Accepted Accounting Principles (GAAP), leading to an adverse opinion.

A Holding Company Has Decided to Carry Its Wholly Owned