ISA 550, Related Parties

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. Which of the following statements is NOT true?

  2. Which behavioural characteristic is particularly important in the audit of related parties?

  3. According to the definitions of ISA 550, which of the following are related parties? (i) two subsidiaries with the same parent company; (ii) two companies with the same board of directors; (iii) two companies both of which are major customers of the same supplier

  4. The auditor is required to enquire with management regarding which of the following: (i) the identity of related parties; (ii) changes to the identity of related parties from the prior period; (iii) the nature of relationships between the entity and identified related parties; (iv) the type and purpose of transactions entered into with identified related parties

  5. If the auditor discovers related parties or significant related party relationships that management had not previously identified or disclosed, what action does ISA 550 require the auditor to take?

  6. ISA 550 contains the following definition: 'A transaction conducted on such terms and conditions as between a willing buyer and a willing seller who are unrelated and are acting independently of each other and pursuing their own best interests'. What does this define?

  7. According to ISA 550, apart from management, which of the following are considered likely to have knowledge of an entity's related party relationships and transactions? (i) those charged with governance; (ii) internal auditors; (iii) in-house legal counsel; (iv) the chief ethics officer

  8. Which of the following is NOT a reason given in ISA 550 for some entities having deficient or non-existent controls over related party relationships and transactions?

  9. When is the auditor required to obtain an understanding of controls in relation to the identification of, and approval of transactions with related parties?

  10. When the auditor had identified a significant related party transaction outside the entity's normal course of business, what is required? (i) An evaluation of the business rationale of the transaction; (ii) The matter is treated as money laundering; (iii) Evidence is obtained regarding the authorisation and approval of the transaction; (iv) An evaluation of the disclosure of the transaction in the financial statements