- The standard defines related parties as parties that are closely associated with the reporting entity, including subsidiaries, associates, joint ventures, key management personnel, and entities under common control. Related parties can also include individuals or entities with significant influence over the reporting entity or vice versa.
- Audit Procedures: ISA 550 outlines specific audit procedures that auditors should perform to identify related party transactions and relationships, assess the risk of material misstatement, and respond appropriately to identified risks. These procedures include:
- Obtaining an understanding of the entity’s related party relationships and transactions.
- Inquiring with management and obtaining representations regarding related party transactions and relationships.
- Reviewing relevant documentation, such as contracts, agreements, and financial statements of related parties.
- Performing analytical procedures to assess the reasonableness of related party transactions.
- Considering the nature and significance of related party relationships and transactions in assessing inherent and control risks.
- Evaluating the adequacy of the entity’s identification, accounting, and disclosure of related party transactions and relationships in the financial statements.