ISA 550 Related Parties (SELF Notes) PDF

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Summary

Group Audit (self note)...

Description

ISA 550 RELATED PARTIES Reason of higher risk of misstatement for related parties transaction: -

Extensive and complex relationship Information system don’t often help to identify related party transaction Related party transaction might not be under normal market terms (extra discount)

Responsibility of Auditor: -

Understand the accounting disclosure requirements for a related part’s transactions. Perform audit procedures to ensure right disclosure are made. (fair presentation and is not misleading)

Biggest assertion of risk when it comes to related parties is the COMPLETENESS ASSERTION -

Able to identify all of the related parties Rely a lot on disclosure by management and staf But there is an unavoidable risk as management might not aware of who all the related party are

Segregation of duties to minimize the possibility of person engaging in fraud . However, multiple people working together (related party relationship), chance of fraud increses. Thus, PLANNING and PERFORMING AUDIT WITH PROFESSIONAL SCEPTICISM (a questioning mind and being critical when assessing audit evidence) Aim’s length transaction -

Standard market prices No special treatment

Who is Related Party: -Person or entity related to the entity that is preparing its financial statement 1.Person or a close member of that person’s family 2.An entity (members of the same group / joint venture/ jointly controlled entity/ person whi has significant influence/ entity provide management personnel service )

1. Assess the possibility of risk of associated with the related party

-Do in early planning stage (understanding client, generate a list of inherent risks, consider fraud) ===Understand entity’s related party relationship and transactions -

Ask management who are they the nature of the relationships Are there any transactions Pricing of the transactions (market rate / special deal)

===Need to know whether the management have controls and procedures to be able to identify related party transactions have proper approval channel (extra approval board/ independent check) and other processes to approve transactions outside the normal course of business.(an increased possibility that they might be related party transaction) ===Have alertness from related party information when reviewing documents/ records (all the time) -Is there anything looks suspicious? ===Specific thing that need to look for in regards of the related party transactions -Inspect the documents below (completeness assertion) --- Bank and legal confirmations ---Minutes of meetings --- document that auditor considered necessary

=== Share information with audit team === Identify the risk of misstatement associated with the related parties -Are there any inherent risk? If yes, respond to those risks (actions going to do to investigate the risk identified) ===Identify previously unidentified or undisclosed related party transactions -If find something tat suggest the possibility of a related party transaction - Investigate -If yes, communicate with audit team - Talk to management (why the entity control over related party / why did they fail to identify)

Improve?/ Potential engage in fraud by hiding issues that auditor need? Do I need to increase evidence in this area/ increase searching for related party transaction?...