Page 150 - Internal Auditing Standards

Guide to Using International Standards on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts

• Achieve fair presentation (for fair presentation frameworks); or

• Are not misleading (for compliance frameworks).

When information is identified that suggests the existence of related-party relationships or transactions that

were not previously identified or disclosed by management, the auditor is required to determine whether the

underlying circumstances confirm the existence of such relationships or transactions.
ISA 550 provides guidance on the auditor’s responsibility and audit procedures regarding related parties and
transactions with such parties.

Exhibit 12.1-2

Auditor
Responsibility
Where Description
Applicable Obtain an understanding of the entity’s related-party relationships and transactions
Financial Reporting suffi cient to:
Framework • Recognize fraud risk factors, if any, arising from related-party relationships
Establishes Minimal and transactions that are relevant to the identification and assessment of the

or No Requirements risks of material misstatement due to fraud; and
• Conclude, based on the audit evidence obtained, whether the fi nancial
statements, insofar as they are affected by those relationships and

transactions, achieve fair presentation (for fair presentation frameworks); or
are not misleading (for compliance frameworks).

Applicable In addition to the steps described above, obtain suffi cient appropriate audit
Financial Reporting evidence to comply with the specific accounting and disclosure requirements for

Framework Sets Out related-party relationships, transactions, and balances.
the Requirements

12.2 Risk Assessment

Paragraph # Relevant Extracts from ISAs
550.11 As part of the risk assessment procedures and related activities that ISA 315 and ISA 240 require the
auditor to perform during the audit, the auditor shall perform the audit procedures and related
activities set out in paragraphs 12-17 to obtain information relevant to identifying the risks of
material misstatement associated with related-party relationships and transactions. (Ref: Para. A8)
550.12 The engagement team discussion that ISA 315 and ISA 240 require shall include specifi c consideration

of the susceptibility of the financial statements to material misstatement due to fraud or error that
could result from the entity’s related-party relationships and transactions. (Ref: Para. A9-A10)
550.13 The auditor shall inquire of management regarding:
(a) The identity of the entity’s related parties, including changes from the prior period; (Ref:
Para. A11-A14)
(b) The nature of the relationships between the entity and these related parties; and
(c) Whether the entity entered into any transactions with these related parties during the
period and, if so, the type and purpose of the transactions.

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