Document ID: chunk:federal_register_of_legislation:F2023C01132:reg:23:p10
Version: federal_register_of_legislation:F2023C01132
Segment Type: reg
Provision Reference: reg 23 (pt 10/23)
Character Range: 35156–38435

regulation and other authority governing public sector bodies that lay down specific requirements in the conduct of business with related parties.  Further, the public sector auditor may need to have regard to public sector financial reporting requirements for related party relationships and transactions that may differ from those in the private sector.

Understanding the Entity's Related Party Relationships and Transactions

Discussion among the Engagement Team (Ref: Para. 12)

A9.             Matters that may be addressed in the discussion among the engagement team include:

           * The nature and extent of the entity's relationships and transactions with related parties (using, for example, the auditor's record of identified related parties updated after each audit).

           * An emphasis on the importance of maintaining professional scepticism throughout the audit regarding the potential for material misstatement associated with related party relationships and transactions.

           * The circumstances or conditions of the entity that may indicate the existence of related party relationships or transactions that management has not identified or disclosed to the auditor (for example, a complex organisational structure, use of special‑purpose entities for off‑balance sheet transactions, or an inadequate information system).

           * The records or documents that may indicate the existence of related party relationships or transactions.

           * The importance that management and those charged with governance attach to the identification, appropriate accounting for, and disclosure of related party relationships and transactions (if the applicable financial reporting framework establishes related party requirements), and the related risk of management override of controls.

A10.         In addition, the discussion in the context of fraud may include specific consideration of how related parties may be involved in fraud.  For example:

           * How special‑purpose entities controlled by management might be used to facilitate earnings management.

           * How transactions between the entity and a known business partner of a key member of management could be arranged to facilitate misappropriation of the entity's assets.

The Identity of the Entity's Related Parties (Ref: Para. 13(a))

A11.         Where the applicable financial reporting framework establishes related party requirements, information regarding the identity of the entity's related parties is likely to be readily available to management because the entity's information systems will need to record, process and summarise related party relationships and transactions to enable the entity to meet the accounting and disclosure requirements of the framework.  Management is therefore likely to have a comprehensive list of related parties and changes from the prior period.  For recurring engagements, making the enquiries provides a basis for comparing the information supplied by management with the auditor's record of related parties noted in previous audits.

A12.         However, where the framework does not establish related party requirements, the entity may not have such information systems in place.  Under such circumstances, it is