Related Party Transactions

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 entity's 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 entity's normal course of business