Main changes from AUS 518 (July 2002) ReMain changes from AUS 518 (July 2002) Related Parties

Main changes from AUS 518 (July 2002) Related Parties

The main differences between this Auditing Standard and the Auditing Standard issued by the Auditing & Assurance Standards Board of the Australian Accounting Research Foundation, AUS 518 (July 2002) Related Parties, are that in this Auditing Standard:

1. The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 518 by the word ‘should’.
2. The explanatory paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 518 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been redrafted to clarify that the matter forms part of the explanatory guidance.
3. The following implied obligations in AUS 518, have been elevated and re-stated as specific mandatory requirements:

(a) based on the auditor’s understanding of the entity and its environment including its internal control, the auditor shall make an assessment of the risk of material misstatement as it relates to the identification of related parties and the authorisation and recording of related party transactions (paragraph 13);

(b) the auditor shall review information provided by those charged with governance and management identifying the names of all known related parties and shall perform the following audit procedures to reduce the risk of related parties remaining undetected to an acceptably low level:

(i) review prior year working papers for names of known related parties;

(ii) review the entity’s procedures for identification of related parties;

(iii) enquire as to the affiliation of those charged with governance and officers with other entities;

(iv) review shareholder records to determine the names of principal shareholders or, if appropriate, obtain a listing of principal shareholders from the share register;

(v) review minutes of the meetings of shareholders and those charged with governance and other relevant statutory records such as the register of directors’ interests;

(vi) enquire of other auditors currently involved in the audit, or predecessor auditors, as to their knowledge of additional related parties; and

(vii) review the entity’s income tax returns and other information supplied to regulatory agencies.

If, in the auditor’s judgement, there is a lower risk of significant related parties remaining undetected, these procedures may be modified as appropriate (paragraph 18);

(c) the auditor shall endeavour to obtain a written representation from management concerning: