ACCA AAA ^UK Syllabus D. Audit of Historical Financial Information - Auditing Related Parties - Notes ^{9 / 9}

This is because:

1. Need to recognise possible fraud risk factors

2. Need to show fair presentation

3. Need to ensure RPs identified, accounted for and disclosed

Auditors need to..

• Know the indicators of RP existence (not identified by managers) 

  e.g. complex structures

• Records/documents that may indicate related parties

• See the importance management place on identifying, accounting for and disclosing RPs

• Understand the risk of management override of RPs controls

Review

1. P/Y working papers for names of known RPs

2. Shareholder records/share register

3. Income tax returns

4. Records of investments and senior management pension
   plans

5. Internal auditors' reports

Examples include:

• An unusually high turnover of senior management

• The use of business intermediaries for significant transactions

• Evidence of the RPs excessive participation in selecting  accounting policies

Auditing IDENTIFIED Related Parties

1. Confirm terms, conditions and amounts with the RPs

2. Inspect evidence of appropriate authorisation

3. Confirm or discuss with relevant independent persons (e.g.
   banks, lawyers)

4. Review RPs FS for related party disclosures made

If transactions are OUTSIDE normal course of business

• Evaluate business rational

• Do management explanations make sense

• Accounting and disclosure is in accordance with the reporting framework

• Authorisation is appropriate

What if we find an RP that management didn't tell us about?

1. Tell the engagement team

2. Get management to identify all transactions with the RP

3. Ask why management controls failed to recognise them

4. Perform appropriate substantive audit procedures

5. Reconsider risk of other RPs not told about & perform additional procedures

6. If intentional - evaluate the implications for the audit (e.g. management's integrity etc)

Tell Those charged with governance about:

• Management failure to disclose information

• Disagreement with management regarding RP accounting and disclosure

• Non-compliance with laws and regulations

• Difficulties in identifying the party that ultimately controls the entity

Effect on Auditor's Opinion

1. Disagreement if disclosures are inadequate

2. Limitation of scope if insufficient information

Limitation of Scope if...

1. Management give identifying RP low importance

2. Lack of appropriate oversight by those charged with governance

3. Intentional disregard to controls because disclosures would be sensitive

4. Poor management understanding of RP accounting and disclosures needed

5. The absence of disclosure requirements under the applicable financial reporting framework