The auditor needs to verify the grants have been properly identified as related to income and capital expenditure in the accounting period. In particular, the auditor should ensure that the conditions of the grant are being met; they may be repayable under certain circumstances.
It is also necessary to confirm that the grants have been accounted for in accordance with IAS 20. For example that capital grants are recognized over the expected useful life of the related asset and revenue grants are matched against the related expenditure.
There are two acceptable methods of accounting for capital grants. They can either be netted of against the asset (and the net cost of the asset is then depreciated) or the grant can be treated as deferred income and then allocated to the income statement on the same basis as depreciation is charged on the related asset. Re-performance and accuracy tests should be performed by the auditor.
The auditor should ensure that the accounting policy is appropriate in accordance with the standard and properly discussed.
Goodwill and Business Combinations
Goodwill is the most strange of all assets because it cannot be distinguished from the business. It cannot be sold on its own as asset. It is the most difficult to ascribe a value to. There is no reliable basis for determining the value of this asset.
The problem with internally generated goodwill is trying to quantify the asset. Therefore, internally generated goodwill should not be recognised as an asset in accounts meant to give a true and fair view. Therefore if the auditor finds a set of accounts where internally generated goodwill has been recognised as an asset in the balance sheet then, he should be aware that this treatment is against the requirements of IAS and should accordingly qualify his report.