Related parties are those parties considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial decisions. A related party could be management, owner or any person who is in the position to influence an entity’s operating policies and financial position.
The following are procedures which audit may use to identify related parties during the audit
- Review last year’s working papers and financial statements to confirm that the list provided to the auditor includes the related parties which were identified the previous year.
- Review the entity’s procedures to identify related parties.
- Collect information about key management personnel.
- Review joint venture agreements and confirm that the joint venture is included in the list.
- Inquire with the previous auditor about the related parties and compare the information provided with the list.
- Review correspondence with the entity’s lawyer for evidence of related parties.
- Ensure that all names of pension funds (established for benefits of employees) and their management are included in the list.
- Ask for income tax returns and information made available by regulatory authorities and verify whether the information relating to related parties matches with the list.
- Ask for the copies of minutes of various meetings such as board meetings, annual general meetings and confirm whether there are any references to related parties.
- Verify secretarial records for interested parties, register of directors of interest, names of principal shareholders and verify whether they fell within the scope of related parties.