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Audit Case

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Audit Case
Question 3
An auditor examination affected when a client engaged in significant related party transactions is due to increase risk of fraud in the firm. According to ISA 550, the auditor should obtain sufficient evidence regarding the disclosure by management of related parties that engage with the client and the effect of the transaction that they made which are materials to financial statement. It mean as an auditor, they have to be more aware about the related party when go through the auditing procedure even if the auditor has no reason to suspect that related party transaction.
Moreover, it is important to recognize the related party transactions that may give high risk misstatement. An auditor have to discussed with the engagement team regarding a specific consideration that have to be made due to susceptibility of the financial statement to material misstatement resulting from the related party transactions. This is due an auditor examination may be affected if there is relationship present management with opportunities to conduct fraud when the risk management override of control is high in considering relation with related party transactions.
In order to determine that any transaction with the related party have been properly recorded by a client, an auditor should review info that provided by the management regarding the related party transactions. The auditor has to conduct audit procedure to ensure that information provided can be reviewed for completeness. If the availability regarding related party audit evidence is limited, the auditor may discuss with the management regarding the transaction amount and term, the nature of the relationship of client and related party and inspect the documentary evidence in possession of related party. It is also important to consider whether related party transactions have been authorized and approved by the management. The auditor may obtain management representation letter concerning the completeness of info
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