SA 550

Auditing

1. AUDITING
SA –550 RELATED PARTY

2. WHAT IS A RELATED PARTY
ThatisrelatedtotheEntity
That is preparing its Financial Statements (referred to as the 'Reporting Entity').
•Individuals who are related parties o A person Or o A close member of that Person's
family Is related to a Reporting Entity if that Person:
•HasControlorJointControloftheReportingEntity;
•HasSignificantInfluenceovertheReportingEntity;or
•IsamemberoftheKeyManagementPersonnelofthe
(a)ReportingEntity
Or
(b)OfaParentoftheReportingEntity.

3. •Entities which are related parties
•AnentityisrelatedtoaReportingEntityifanyofthefollowingconditionsapplies:
•TheEntityandtheReportingEntityaremembersofthesamegroup
•OneentityisanAssociateorJointVentureoftheOtherEntity
•BothentitiesareJointventuresofthesamethirdparty.
•OneentityisaJointventureofathirdentityandtheotherentityisanAssociateof
thethirdentity.
•Theentityisapost-employmentbenefitplanforthebenefitofemployeesofEither
the
ReportingEntity
Or
An entity related to the Reporting Entity

4. CLOSE MEMBERS OF THE FAMILY
Family members who may be expected: To influenceBe influenced
BythatpersonintheirdealingswiththeEntityincluding:
•(a) That person's:
•Children
•Spouse or Domestic partner
•Brother
•Sister
•FatherandMother
•(b) Children of that person's • Spouse or Domestic partner
•(c) Dependants of that: Person or Person's spouse or Domestic partner

5. KEY MANAGEMENT PERSONNEL
Key management personnel are:
Those persons having authority and responsibility for:
•Planning
•Directing and
•ControllingoTheactivitiesoftheentity
•Directly or Indirectly
•IncludinganyDirector(whetherexecutiveorotherwise)Ofthat
entity

6. RELATED PARTY TRANSACTIONS
•A related party transaction is a:
•Transfer of:
Resources
Services or
Obligations Between
Reporting entity and Related party
Regardlessofwhetherapriceischarged

7. EXAMPLES
OF
RELATED
PARTY

10. AUDITORS OBJECTIVE
•To obtain an understanding of related party relationships &
transactions sufficient to be able to recognize fraud risk factors;
•Toobtainevidencethatwhethertheentity
followstheFRF(AS18)i.e.appropriately identified, accounted for
and disclosed in the financial statements as per FRF.
•The management is responsible for identification of related party. The
auditor should validate the procedures followed by the management in
identifying the related party.

11. AUDITORS PROCEDURES
The auditor shall:-
•Obtain an understanding of entities related party relationships and
transactions;
•Maintaining alertness for related party information during the audit;
•Sharing related party information with the Engagement Team.

12. The auditor can identify the related party by the following:-
•Review his working papers of previous years to know the names of
related party.
•Reviewtheentitiesproceduresforidentification.
•Review MOA, AOA minutes books of meetings and other statutory
records such as register directors interest.
•Inquirewithinternalauditor,costauditor,specialauditors,andc
oncurrent auditors as they already know about the related parties.

13. •Review the joint venture and other agreement entered into by the
entity.
•ReviewtheentitiesIncometaxreturnsandotherinformationsup
pliedtothe regulatory authorities.
•Reviewastoaffiliationofdirectors,keymanagerialpersonneland
officerswith other entities etc.
•Finally auditor should obtain the written representation from the
management about the completeness of information provided regarding
the related parties.

14. WRITTEN REPRESENTATION
The auditor shall obtain Written Representation from
management & TCWG that they have:-Disclosed to
auditor the identity of entities RP and all RP
relationships & transactions of which they are aware;
andAppropriatelyaccounted
for&disclosedsuchrelationshipsandtransactions
by FRF (AS 18).

15. Case study
•Case Study I:
•Exemption from disclosure
•GovernmentGdirectlyorindirectlycontrolsEntities1and2andEntitiesA,B,Cand
D.PersonXisamemberOfthekeymanagementpersonnelofEntity1.

16. In Entity A's financial statements, an example of disclosure could be:
•Example of disclosure for individually significant transaction carried out on
non-market terms
On15January,2017EntityA,autilitycompanyinwhichGovernmentGindirectlyowns75
percentofoutstandingshares,solda10-hectarepieceoflandtoanotherGovernment-
relatedutilitycompanyforRs.5million.
On31December,2016aplotoflandinasimilarlocation,ofasimilarsizeandwithsimilar
characteristics,wassoldforRs.3million.Therehadnotbeenanyappreciationor
depreciationofthelandintheinterveningperiod.
•Example of disclosure for individually significant transaction because of size of
transaction
IntheyearendedDecember2017GovernmentGprovidedEntityA,autilitycompanyin
whichGovernmentGindirectlyowns75percentofoutstandingshares,withaloan
equivalentto50percentofitsfundingrequirement,repayableinquarterlyinstalments
overthenextfiveyears.
Interestischargedontheloanatarateof3percent,whichiscomparabletothatcharged
onEntityA
t
sbank.