SA 550 Summary Auditing Standards on Related Parties
1. Purpose: The purpose is to establish standards on the auditor’s responsibilities and audit procedures regarding related parties and transactions with such parties.
2. Management is responsible for the identification and disclosure of related parties and transactions with such parties.
3. Auditor needs to be aware of them because:
a. A related party transaction may be motivated by other than ordinary business considerations, for example, profit sharing or even fraud.
b. Affect the financial statements.
4. Procedures to know the information of related parties:
a. Inquire as to the relation of directors and key management personnel, officers with other entities, other auditorsof the entity.
b. Review shareholder records, minutes of the meetings, the report of the predecessor auditors, the entity’s income tax returns.
5. The auditor needs to be alert for transactions such as, unusual prices, interest rates, guarantees, and repayment terms, Performance of services without charge, Provision of management services at no charge.
6. Management Representations are to be scrutinized.
7. Audit Conclusions and Reporting: If the auditor is unable to obtain sufficient appropriate audit evidence or thinks that that their disclosure in the financial statements is not adequate, the auditor should express a qualified opinion/ adverse opinion / disclaimer of opinion.
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