Risk Assessment Procedures and Related ARisk Assessment Procedures and Related Activities

Risk Assessment Procedures and Related Activities

1. As part of the risk assessment procedures and related activities that ASA 315 and ASA 240 require the auditor to perform during the audit,[7] the auditor shall perform the audit procedures and related activities set out in paragraphs 12‑17 of this Auditing Standard, to obtain information relevant to identifying the risks of material misstatement associated with related party relationships and transactions. (Ref: Para. A8)

Understanding the Entity’s Related Party Relationships and Transactions

1. The engagement team discussion that ASA 315 and ASA 240 require[8] shall include specific consideration of the susceptibility of the financial report to material misstatement due to fraud or error that could result from the entity’s related party relationships and transactions. (Ref: Para. A9‑A10)
2. The auditor shall enquire of management regarding:
   1. The identity of the entity’s related parties, including changes from the prior period; (Ref: Para. A11‑A14)
   2. The nature of the relationships between the entity and these related parties; and
   3. Whether the entity entered into any transactions with these related parties during the period and, if so, the type and purpose of the transactions.
3. The auditor shall enquire of management and others within the entity, and perform other risk assessment procedures considered appropriate, to obtain an understanding of the controls, if any, that management has established to: (Ref: Para. A15‑A20)
   1. Identify, account for, and disclose related party relationships and transactions in accordance with the applicable financial reporting framework;
   2. Authorise and approve significant transactions and arrangements with related parties; and (Ref: Para. A21)
   3. Authorise and approve significant transactions and arrangements outside the normal course of business.

Maintaining Alertness for Related Party Information When Reviewing Records or Documents

1. During the audit, the auditor shall remain alert, when inspecting records or documents, for arrangements or other information that may indicate the existence of related party relationships or transactions that management has not previously identified or disclosed to the auditor. (Ref: Para. A22‑A23)

In particular, the auditor shall inspect the following for indications of the existence of related party relationships or transactions that management has not previously identified or disclosed to the auditor:

1. Bank and legal confirmations obtained as part of the auditor’s procedures;