Audit book by m asif chapter 16 related parties

CHAPTER SIXTEENRELATED PARTIES LO # LEARNING OBJCTIVE ICAP'S STUDY REFERENCE* TEXT LO 1 DEFINITION TRANSACTIONS OF RELATED PARTY AND RELATED PARTY 12.1.1 LO 2 RESPONSIBILITIES

CHAPTER SIXTEEN

RELATED PARTIES

LO # LEARNING OBJCTIVE ICAP'S STUDY REFERENCE* TEXT

LO 1 DEFINITION TRANSACTIONS OF RELATED PARTY AND RELATED PARTY 12.1.1

LO 2 RESPONSIBILITIES REGARDING RELATED PARTY OF MANAGEMENT AND AUDITOR 12.1.1, 12.1.2

LO 3 PROCEDURES RELATIONSHIPS AND TRANSACTIONS TO IDENTIFY RELATED PARTY 12.1.3

LO 4 RISKS IDENTIFIED AND AUDI TOR’S COURSE OF ACTION 12.1.3

LO 5 MATERIALITY, COMMUNICATION WITH TCWG AND DO WRITTEN REPRESENTATION, CUMENTATION 12.1.3

*Explanation of Reference:

First digit in Study Text’s Reference represents chapter number, second and third digits represents section and sub-section number Contents in brackets (if any) represent part of the sub-section which is covered by the learning objective

Coverage from Question Bank:

After completion of this chapter, you will be able to attempt following questions in ICAP's Question Bank:

LO 1: DEFINITION OF RELATED PARTY AND REL ATED PARTY TRANS ACTIONS:

Related Parties:

Related parties are individuals or organisations that might have, or might be expected to have, an undue influence on the company that is being audited

Examples of related parties include:

Related Party Transactions:

Related party transactions are transactions between the client company and a related party of the company

Responsibilities of Management:

IFRS requires management to identify, account for and disclose related party relationships and

transactions

Responsibilities of Auditor:

1 To evaluate whether related party relationships/transactions have been appropriately identified, accounted for and disclosed in accordance with IFRS

2 To evaluate whether:

1 The auditor shall inquire of management regarding:

2 Obtain understanding of client’s procedures and internal controls over identification, accounting for and disclosure of related party relationship and transactions, including:

3 Review working papers for previous years for known related parties

4 Evaluate relationship of directors with other entities

5 Communicate with component auditor or predecessor auditor (if applicable) for knowledge

of related parties

6 Inspection of records or documents, including:

circumstances e.g Register of shareholders, Register of directors/officers, Entity’s

reporting to regulators (e.g SECP, FBR, SBP), Records of the entity’s investments, Significant contracts re-negotiated by the entity during the period, Published reports by company (e.g financial statements of prior period, prospectuses)

Risk Identified Auditor’s course of action/procedures to address risk

Auditor identifies

related party

relationships or

transactions not

identified by

management:

Auditor shall perform following procedures when he identifies a previously unidentified related party relationship/transaction:

related parties may also exist)

party

party/transaction

If auditor identifies

significant transactions

outside the normal

course of business

Significant transactions outside the normal course of business indicate a related party transaction If auditor identifies such a transaction, auditor shall inquire of management about whether related parties could be involved

If a related party is involved in a significant transaction outside the normal course

of business, it will be a significant risk Auditor shall evaluate whether:

i Transactions have been appropriately authorized (e.g by TCWG)

ii Transactions have been appropriately accounted for and disclosed in accordance with the AFRF

iii The terms of the transactions are consistent with management’s explanations

iv Transaction indicates fraud

Existence of a related

party with dominant

influence***

If there is a related party with dominant influence, auditor shall inspect significant contracts with such related party

***Indicators of dominant influence exerted by a related party include:

managing the entity

LO 5: MATERIALI TY, WRITTEN REPRESENTATION, CO MMUNI CATION WITH TCWG AND DOCUMENTATION:

Materiality:

Transactions with related parties are usually considered material irrespective of size of transaction

Written Representation:

Auditor shall obtain written representations from management that:

1 All Related party relationships and transactions have been appropriately identified, accounted for and disclosed in financial statements in accordance with the requirements of AFRF

2 Management has disclosed to auditor all related party relationships and transactions of which they are aware

Communication with TCWG:

Auditor shall communicate TCWG significant matters regarding Related Parties

Documentation:

The auditor shall include in the audit documentation: