Transactions with Related PartiesTransactions with Related Parties

Transactions with Related Parties

24 The auditor shall review information provided by those charged with governance and management identifying related party transactions and shall be alert for other material related party transactions.

25 During the course of the audit, under paragraph 24 of this Auditing Standard, the auditor needs to be alert for transactions which appear unusual in the circumstances and may indicate the existence of previously unidentified related parties. Examples of transactions which may indicate the existence of unidentified related parties include the following:

• Transactions which have abnormal terms of trade, such as unusual prices, interest rates, guarantees, and repayment terms.
• Transactions which lack an apparent logical business reason for their occurrence.
• Transactions in which substance differs from form.
• Transactions processed in an unusual manner.
• High volume or significant transactions with certain customers or suppliers as compared with others.
• Unrecorded transactions such as the receipt or provision of management services at no charge.

26 During the course of the audit, the auditor ordinarily carries out other audit procedures which may identify the existence of transactions with related parties. Examples include the following:

• Performing detailed tests of transactions and balances.
• Reviewing minutes of meetings of shareholders and those charged with governance.
• Reviewing accounting records for large or unusual transactions or balances, paying particular attention to transactions recognised at or near the end of the reporting period.
• Reviewing confirmations of loans receivable and payable and confirmations from banks. Such a review may indicate a guarantor relationship and other related party transactions.
• Reviewing investment transactions, for example, purchase or sale of an equity interest in a joint venture or other entity.

27 If, the auditor has reason to suspect the existence of previously unidentified related party transactions, under paragraph 7 of this Auditing Standard, the auditor needs to perform further audit procedures which are designed specifically to determine whether related party transactions have occurred.

28 Where during the audit, the auditor identifies related parties or related party transactions not previously identified, the auditor ordinarily considers:

(a) the reason for this, and the need to reassess risk of material misstatement concerning the identification of related parties and related party transactions; and

(b) the impact on other aspects of the audit when there is a reassessment of these risks.