Amendments to ASA 550

Amendments to ASA 550

1. Existing footnote 7 in paragraph 11 is amended to read as follows:

See ASA 315, paragraph 513; and ASA 240, paragraph 1617.

1. Existing footnote 8 in paragraph 12 is amended to read as follows:

See ASA 315, paragraph 1017; and ASA 240, paragraph 1516.

1. Existing footnote 9 in paragraph 18 is amended to read as follows:

See ASA 315, paragraph 2528.

1. Existing footnote 18 in paragraph A7 is amended to read as follows:

See ASA 315, paragraphs A26-A27A68-A70, which provide guidance regarding the nature of a special-purpose entity.

1. Existing paragraph A9 is amended to read as follows:

Matters that may be addressed in the discussion among the engagement team include:

…

 The importance that management and those charged with governance attach to the identification, appropriate accounting for, and disclosure of related party relationships and transactions (if the applicable financial reporting framework establishes related party requirements), and the related risk of management override of relevant controls.

1. Existing paragraph A12 is amended to read as follows:

However, where the framework does not establish related party requirements, the entity may not have such information systems in place. Under such circumstances, it is possible that management may not be aware of the existence of all related parties. Nevertheless, the requirement to make the enquiries specified by paragraph 13 still applies because management may be aware of parties that meet the related party definition set out in this ASA. In such a case, however, the auditor’s enquiries regarding the identity of the entity’s related parties are likely to form part of the auditor’s risk assessment procedures and related activities performed in accordance with ASA 315to obtain information regarding the entity’s organisational structure, ownership, governance and business model.:

 The entity’s ownership and governance structures;

 The types of investments that the entity is making and plans to make; and

 The way the entity is structured and how it is financed.

…

1. Existing footnote 21 in paragraph A17 is amended to read as follows:

See ASA 315, paragraph 1421.

1. Existing paragraph A20 is amended to read as follows:

Controls activities in smaller entities are likely to be less formal and smaller entities may have no documented processes for dealing with related party relationships and transactions. An owner-manager may mitigate some of the risks arising from related party transactions, or potentially increase those risks, through active involvement in all the main aspects of the transactions. For such entities, the auditor may obtain an understanding of the related party relationships and transactions, and any controls that may exist over these, through enquiry of management combined with other procedures, such as observation of management’s oversight and review activities, and inspection of available relevant documentation.

1. Existing paragraph A28 is amended to read as follows:

Relevant related party information that may be shared among the engagement team members includes, for example:

 The identity of the entity’s related parties.

 The nature of the related party relationships and transactions.

Significant or complex related party relationships or transactions that may be determined to be significant risks require special audit consideration, in particular transactions in which management or those charged with governance are financially involved.

1. Existing paragraph A34 is amended to read as follows:

Depending upon the results of the auditor’s risk assessment procedures, the auditor may consider it appropriate to obtain audit evidence without testing the entity’s controls over related party relationships and transactions. In some circumstances, however, it may not be possible to obtain sufficient appropriate audit evidence from substantive audit procedures alone in relation to the risks of material misstatement associated with related party relationships and transactions. For example, where intra-group transactions between the entity and its components are numerous and a significant amount of information regarding these transactions is initiated, recorded, processed or reported electronically in an integrated system, the auditor may determine that it is not possible to design effective substantive audit procedures that by themselves would reduce the risks of material misstatement associated with these transactions to an acceptably low level. In such a case, in meeting the ASA 330 requirement to obtain sufficient appropriate audit evidence as to the operating effectiveness of relevant controls,26 the auditor is required to test the entity’s controls over the completeness and accuracy of the recording of the related party relationships and transactions.