Document ID: chunk:federal_register_of_legislation:F2023C01132:reg:23:p12
Version: federal_register_of_legislation:F2023C01132
Segment Type: reg
Provision Reference: reg 23 (pt 12/23)
Character Range: 40993–44368

they have responsibility for the preparation of the financial report in accordance with the applicable financial reporting framework, including where relevant their fair presentation, and for such internal control as management and, where appropriate, those charged with governance determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.[20]  Accordingly, where the framework establishes related party requirements, the preparation of the financial report requires management, with oversight from those charged with governance, to design, implement and maintain adequate controls over related party relationships and transactions so that these are identified and appropriately accounted for and disclosed in accordance with the framework.  In their oversight role, those charged with governance monitor how management is discharging its responsibility for such controls.  Regardless of any related party requirements the framework may establish, those charged with governance may, in their oversight role, obtain information from management to enable them to understand the nature and business rationale of the entity's related party relationships and transactions.

A17.         In meeting the ASA 315 requirement to obtain an understanding of the control environment,[21] the auditor may consider features of the control environment relevant to mitigating the risks of material misstatement associated with related party relationships and transactions, such as:

           * Internal ethical codes, appropriately communicated to the entity's personnel and enforced, governing the circumstances in which the entity may enter into specific types of related party transactions.

           * Policies and procedures for open and timely disclosure of the interests that management and those charged with governance have in related party transactions.

           * The assignment of responsibilities within the entity for identifying, recording, summarising, and disclosing related party transactions.

           * Timely disclosure and discussion between management and those charged with governance of significant related party transactions outside the entity's normal course of business, including whether those charged with governance have appropriately challenged the business rationale of such transactions (for example, by seeking advice from external professional advisors).

           * Clear guidelines for the approval of related party transactions involving actual or perceived conflicts of interest, such as approval by a subcommittee of those charged with governance comprising individuals independent of management.

           * Periodic reviews by the internal audit function, where applicable.

           * Proactive action taken by management to resolve related party disclosure issues, such as by seeking advice from the auditor or external legal counsel.

           * The existence of whistle‑blowing policies and procedures, where applicable.

A18.         Controls over related party relationships and transactions within some entities may be deficient or non‑existent for a number of reasons, such as:

           * The low importance attached by management to identifying and disclosing related party relationships and transactions.

           * The lack of