ACCA AAA · Chapter 20
Related parties
Your chapter at a glance. Open any section, or keep the whole map in view.
Relationships, unidentified parties and audit procedures
Look beyond the list identify, evaluate and disclose
IAS 24 scope
- Person with control, joint control, significant influence or KMP role
- Close family member of such a person
- Entities linked by group, associate or joint venture ties
- May include employee post-employment benefit plans
Why it matters
- Relationship may affect position or profit or loss
- Transactions and balances, including commitments, need disclosure
Responsibility
- Management identifies and discloses RPTs
- Auditor assesses RoMM and obtains evidence
Difficult to discover
- Different family surnames and hidden business interests
- Complex ownership or deliberate concealment
- Transactions without consideration or accounting entries
- RPTs that resemble routine trading
Possible misstatement
- Inappropriate accounting or omitted disclosure
- Fraud, collusion or transfer of assets/profits
- Non-market terms and management bias
Apply judgement
- RPTs are not inherently improper
- Explain the risk in the particular facts
Enquire and understand
- Review prior files and ask management/directors
- Understand identification, approval and disclosure controls
- Ask about directorships and shareholdings
Inspect records
- Minutes of shareholders and TCWG
- Unusual entries, transactions and investment activity
- Bank/legal confirmations, lawyers’ correspondence
- Principal shareholders of trading counterparties
- Post-employment benefit plan records
Significant unusual RPTs
- Inspect agreements, rationale, terms and approval
- Obtain relevant written representations
Relationships and people
- Parent/subsidiary relationship even without transactions
- Key management personnel compensation
Transactions and balances
- Amounts and terms of outstanding balances
- Allowances and irrecoverable/doubtful debt expense
- Purchases, sales, leases, finance and guarantees
Evidence and scepticism
- Test accounting and completeness of disclosures
- Do not limit work to management’s known list
- Substantiate any claim of arm’s length terms
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