ISA 550, Related parties
The objectives of the auditor with regard to ISA 550 are to obtain an understanding of the entity’s related party relationships and transactions. Here on MCQs.club we have prepared easy Multiple-Choice Questions (MCQs) on ISA 550, Related parties revised IFAC that fully cover the ISA 550 summary and definition, ISA 550 MCQs with answers, these MCQs are a basis of conclusions. These MCQ on SA 550 are helpful for Competitive exams, Professional Accountancy exams and Business management exams.
- Related parties are individuals or organisations that might have, or might be expected to have, an undue influence on the company that is being audited. Examples of related parties include:
- the directors and key management of a company
- their families
- other companies controlled by directors, key managers and members of their close family
- other companies in the same group.
- All of the above
- The approach required by IAS 24 Related party disclosures is to disclose:
- the relevant amounts of related party transactions
- the nature of the related party relationships
- Both A&B
- None
- The objectives of the auditor with regard to ISA 550 are to obtain:
- an understanding of the entity’s related party relationships and transactions
- sufficient appropriate audit evidence about whether related party relationships and transactions have been appropriately identified, accounted for and disclosed in the financial statements.
- Both A&B
- None
- Most material misstatements linked to related party transactions arise from failure by the management of the client company to disclose related party relationships and transactions to the auditor.
- True
- False
- What procedures the auditor is required to perform in order to understand the entity’s related party relationships and transactions:
- Make inquiries of management in respect of the identity of related parties, the nature of relationships and the nature of any transactions entered into with those parties during the period.
- Obtain an understanding of the internal controls in operation over the identification of, accounting for and disclosure of related party relationships and transactions, the authorisation and approval of significant transactions with related party and outside the normal course of business
- Both A&B
- None
- In making inquiries of management in respect of the identity of related parties, the auditor will obtain a list of related parties from the directors, and consider if this list is complete. Tests for completeness could include:
- Review working papers for previous years, to look for names of known related parties.
- Ask previous auditors of the company about their knowledge of related parties.
- Review shareholder records for the names of major shareholders.
- All of the above
- The auditor may have difficulty in obtaining a complete list of related parties. Particular problem areas where the disclosure of related parties may be incomplete are:
- close family relationships
- where the related party is another business entity which is owned or influenced by a director of the client company.
- Both A&B
- None
- Which of the following statement is correct?
- If the auditor identifies significant transactions outside the entity’s normal course of business he must inquire as to the nature of these transactions and whether related parties could be involved.
- ISA 550 states that any significant related party transactions outside the entity’s normal course of business must be treated as giving rise to significant risks of material misstatement.
- Both A&B
- None
- Indicators that a person or entity might be a dominant party include:
- the party vetoing significant business decisions of the entity
- significant transactions being referred to the party for final approval
- little or no debate among management in respect of business proposals made by the party
- transactions involving the party (or its close family members) are rarely independently reviewed or approved.
- All of the above
- If the auditor discovers previously unidentified or undisclosed related parties or (significant) related party transactions he must:
- Determine whether the underlying circumstances confirm the existence of those relationships or transactions.
- Request management to identify all transactions with the newly identified related parties.
- Perform appropriate substantive procedures on the newly identified related parties or significant related party transactions.
- All of the above
- If the auditor discovers significant related party transactions outside the entity’s normal course of business he must:
- Inspect the underlying contracts or agreements to evaluate whether it was entered into in order to engage in fraudulent financial reporting or to hide the misappropriation of assets
- Obtain evidence that the transactions were properly authorised.
- Both A&B
- None
- Written representations must always be obtained by the auditor from the directors about related parties and related party transactions. The written representation from the directors must cover:
- the completeness of the information that has been provided about the identity of related parties and related party relationships and transactions.
- the adequacy of accounting for and disclosure of such related party relationships and transactions in the financial statements.
- Both A&B
- None
- The names of all identified related parties and the nature of the related party relationships must be documented.
- True
- False
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