Related Parties

Question 1

Define Related Parties?

Answer 1

means a related party as defined in AFRF. If AFRF does not have related party requirements, it means:
1- individuals or organizations that has control or influence over the entity.
2- organizations on which entity has controls or influence.
3- organizations under common control and management.

Question 2

what are the examples of related parties?

Answer 2

Example of Related parties include;
1- companies in the same group e.g. holding, subsidiary and associated.
2- Majority shareholders, Directors, Key Management of the company, and their close relatives.
3- other entities controlled by majority shareholders, directors, key management or their relatives.

Question 3

Why risk is high in related party transactions?

Answer 3

1- Transactions may operate through complex relationships and structures.
2- Inherent limitations that managament may be unaware of existance of all related parties. Further, Information system may not identify all related party transactions.
3- May not be conducted at arm’s length basis.
4- Managament may commit fraud through collusion with related parties.

Question 4

What are the responsibilities of management regarding related party?

Answer 4

If AFRF prescribes related party requirements, it is the responsibility of Management to identify, account for and disclose related party relationships and transactions in financial statements in accordance with AFRF.

Question 5

What are the responsibilities of Auditor regarding related party?

Answer 5

1- Auditor is responsible to obtain understanding of related party relationships and transactions to assess risk (including risk of fraud)
2- Auditor is responsible to obtain evidence that:
a. all related party relationships and transactions have been identified, approved, accounted for and disclosed in financial statements in accordance with AFRF.
b. financial statements give true and fair view (if fair presentation framework is used), OR financial statements are not misleading (if compliance framework is used).

Due to inherent limitations of audit, Auditor may not detect all related parties.

Question 6

How to Ensure the completeness of related parties? OR What are risk Assessment procedures regarding related parties?

Answer 6

Following are the procedures to obtain information to identify risk associated with related parties.
1- Inquiry
2- Discussion among engagement team.
3- Inspection.
4- other procedures to ensure completeness of related parties.