![]() ![]() ![]() ![]() The standard effectively expands on how other standards, namely ISA 315 and ISA 330, which require and explain how to perform risk assessment procedures and further audit procedures to respond to assessed risks, should be applied in the context of related parties. The auditing standard that deals with the auditor’s responsibilities relating to related party relationships and transactions is ISA (UK and Ireland) 550, Related parties. Related party relationships may offer the opportunity for collusion, manipulation or concealment by management and, consequently, present a heightened risk of fraud.Management may be unaware of the existence of some related party relationships and transactions because it may not grasp the complexity of their structure and the interaction with relevant reporting requirements.The inherent limitations of an audit, whereby some material misstatement may not be identified even if the audit is properly planned and performed under the ISAs, are magnified by peculiar causes such as: Transactions with related parties may not take place on normal commercial terms, even though, prima facie, the price charged may be in line with that of similar arm’s length transactions.Īdditionally, in respect of related parties, the detection risk faced by the auditor is generally greater than for other assertions in the financial statements.The entity’s information systems may not be effective in identifying and recording related party relationships and transactions.The entity’s related parties may operate via an extensive and complex network of relationships, sometimes put in place to obfuscate control of the entity, making related party transactions difficult to unravel.Related party relationships and transactions may be difficult to identify and report by the entity, and subject to an increased risk of fraud, for various reasons, including: Risks about the ability of the company to continue in business as a going concern – if the entity’s interest is constantly subordinated to that of related parties.Risks from non-identification or non-disclosure.However, in other circumstances, in view of the nature of related party relationships and transactions, they may carry a higher risk of material misstatement in respect of: In such a case, related party transactions may not pose a higher risk of material misstatement of the financial statements than similar transactions with unrelated parties. In many cases related party transactions are undertaken in the course of the normal business of an entity, for instance a company may perform the acquisition of certain items for all the entities in a group or, rather, members of the management of an entity may occasionally buy the same goods or services offered to the entity’s clients with the same ‘staff discount’ applicable to other employees. The document can be accessed from the Related Downloads section. The rationale for these requirements is grounded in the fact that related parties by their nature are not independent of each other and, therefore, additional disclosures and more stringent rules should apply to relationships and transactions between the entity and related parties in order to enable users of the financial statements to understand their nature and the actual or potential effects on the business.ĪCCA has published Technical Factsheet 180 that deals with reporting requirements in respect of related parties. Many financial reporting frameworks, including UK GAAP and IFRS, include specific requirements in respect of accounting for and disclosing related party relationships, transactions and balances. We'd suggest that you use this as a guide when allocating yourself CPD units. One hour of learning equates to one unit of CPD. Studying this technical article and answering the related questions can count towards your verifiable CPD if you are following the unit route to CPD and the content is relevant to your learning and development needs. An introduction to professional insights.Virtual classroom support for learning partners.Becoming an ACCA Approved Learning Partner. ![]()
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