Responses to Assessed RisksResponses to Assessed Risks

Responses to Assessed Risks

17 ASA 330 The Auditor’s Procedures in Response to Assessed Risks provides explanatory guidance on the nature, timing and extent of substantive procedures that the auditor may design to respond to the assessed risks of material misstatement resulting from related parties. Appendix 3 of ASA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of a Financial Report lists possible procedures to respond to assessed risks of material misstatement due to fraud, some of which may also be relevant in addressing the assessed risks of material misstatement resulting from related parties.

Existence and Disclosure of Related Parties

18 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:

(a) Review prior year working papers for names of known related parties.

(b) Review the entity’s procedures for identification of related parties.

(c) Enquire as to the affiliation of those charged with governance and officers with other entities.

(d) Review shareholder records to determine the names of principal shareholders or, if appropriate, obtain a listing of principal shareholders from the share register.

(e) Review minutes of the meetings of shareholders and those charged with governance and other relevant statutory records such as the register of directors’ interests.

(f) Enquire of other auditors currently involved in the audit, or predecessor auditors, as to their knowledge of additional related parties.

(g) 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.

19 In addition the auditor may consider:

• Enquiring as to the names of all superannuation and other trusts established for the benefit of employees, and the names of their management, those charged with governance and trustees.
• Reviewing invoices and correspondence from lawyers for indications of the existence of related parties.
• Reviewing contracts and agreements, for example management agreements and trust agreements.

20 Related parties and related party transactions can be difficult to identify and measure because:

• Related parties may operate through an extensive and complex range of relationships and structures.
• Related party transactions may not always involve an exchange of consideration.