Related Party Transactions
Essay Preview: Related Party Transactions
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Bigger Picture
– Inquiry of management, inspection, and maintaining professional skepticism throughout the audit is the main audit procedure in assessing risks arising from related party relationships & transactions
– Auditors must determine and ensure that related party relationships & related party transactions are properly accounted for & disclosed by the reporting entity. Whether significant material misstatement may have arise from these relationships & transactions thus resulting in misleading or improper representation to the users
– Size & nature of related party transactions must be considered when evaluating materiality
– Share findings with the engagement team & reevaluate audit procedures
– Written representations must be obtained from management or those charged with governing responsibilities of the entity, that they have disclosed & properly account for the identity of related parties & all related party relationships & transactions of which they are aware of (in accordance to GAAP)
– The names of the identified related parties and the nature of the related party transactions must be included in the audit documentation
– Communicate findings with those charged with governance. Such as control failures, undisclosed related party transactions
Overview of CAS 550
Defining & indication of Related Parties:
1) A person or other entity who has Control or Significant influence over the reporting entity [p10]
-Directly or indirectly through 1 or more intermediaries over the reporting entity
2) The reporting entity has control or significant influence
– Directly or indirectly through 1 or more intermediaries
3) Another entity that is under common control with 1 or more intermediaries
– Through common control ownership
– Owners who are close family members
– Common key management
Audit Procedures
Inquire the management on related parties & transactions
– Identify the reporting entitys related parties & transactions
– Determine the relationships between related parties & the entity
– Are there transactions between the entity with these related parties during this period
– Such as type & purpose of these transactions
Perform risk assessment procedures through inquiry regarding controls
– Identify, account for, and disclose related party transactions (in accordance to GAAP)
– Are proper authorizations & approvals in place for Significant
Transactions & Arrangements; including transactions outside the entitys normal course of business