Document ID: chunk:federal_register_of_legislation:F2023C01132:reg:23:p21
Version: federal_register_of_legislation:F2023C01132
Segment Type: reg
Provision Reference: reg 23 (pt 21/23)
Character Range: 68017–71303

to those prevailing in arm's length transactions.  In these circumstances, if management has not disclosed a related party transaction in the financial report, there may be an implicit assertion that the transaction was conducted on terms equivalent to those prevailing in an arm's length transaction.

Evaluation of the Accounting for and Disclosure of Identified Related Party Relationships and Transactions

Materiality Considerations in Evaluating Misstatements (Ref: Para. 25)

A46.         ASA 450 requires the auditor to consider both the size and the nature of a misstatement, and the particular circumstances of its occurrence, when evaluating whether the misstatement is material.[28]  The significance of the transaction to the financial report users may not depend solely on the recorded amount of the transaction but also on other specific relevant factors, such as the nature of the related party relationship.

Evaluation of Related Party Disclosures (Ref: Para. 25(a))

A47.         Evaluating the related party disclosures in the context of the disclosure requirements of the applicable financial reporting framework means considering whether the facts and circumstances of the entity's related party relationships and transactions have been appropriately summarised and presented so that the disclosures are understandable.  Disclosures of related party transactions may not be understandable if:

(a)                The business rationale and the effects of the transactions on the financial report are unclear or misstated; or

(b)                Key terms, conditions, or other important elements of the transactions necessary for understanding them are not appropriately disclosed.

Written Representations (Ref: Para. 26)

A48.         Circumstances in which it may be appropriate to obtain written representations from those charged with governance include:

           * When they have approved specific related party transactions that (a) materially affect the financial report, or (b) involve management.

           * When they have made specific oral representations to the auditor on details of certain related party transactions.

           * When they have financial or other interests in the related parties or the related party transactions.

A49.         The auditor may also decide to obtain written representations regarding specific assertions that management may have made, such as a representation that specific related party transactions do not involve undisclosed side agreements.

Communication with Those Charged with Governance (Ref: Para. 27)

A50.         Communicating significant matters arising during the audit[29] in connection with the entity's related parties helps the auditor to establish a common understanding with those charged with governance of the nature and resolution of these matters.  Examples of significant related party matters include:

           * Non‑disclosure (whether intentional or not) by management to the auditor of related parties or significant related party transactions, which may alert those charged with governance to significant related party relationships and transactions of which they may not have been previously aware.

           * The identification of significant related party transactions