Related Party Transactions Flashcards
What is a related party?
Ability to influence the conduct of the other party
What is an arms length transaction?
Between parties who UNRELATED and are acting INDEPENDENTLY and pursuing their OWN BEST INTEREST
What are the responsibilities related to related party transactions?
1) Perform audit procedures to:
identify,
assess, and
respond
to the risk of material misstatement involving related party relationships and transactions
2) Evaluate one or more FRAUD risk factors are present
3) Design audit procedures to respond to assessed risk
How do you identify related party?
always start with INQUIRE OF MANAGEMENT!
Review audit documentation
Review SEC filings (for pubic companies)
Review stockholder listings (for private companies)
How do you identify related party transactions?
ALWAYS start with INQUIRE OF MANAGEMENT!
Review board minutes and those charged with governance
Inspect documents related to LARGE, UNUSUAL TRANSACTIONS (review debt agreements)
- Anytime you’re looking at large transactions you should always be asking “is this a related party, is this outside the normal procedures of the business??”
Is it okay to have transactions with a related party?
Absolutely! Just understand the business party transactions
T/F: Significant related party transactions outside the entity’s normal course of business should be viewed as “significant risks”
True!
What needs to be discussed in communication and documentation with management related to related party transactions?
- Any significant matters associated with the entity’s related parties
- documentation: The names of identified parties and significant transactions
Auditors do not verify the valuation of transactions with related parties?
True, we are not in the business of telling the business that their number is wrong. A business can hang any number on related party transactions that they want.
What is a conflict of interest statement?
Statement signed by management that would provide the auditor with information about potential relationships with related parties that might warrant additional disclosure.
