Academic journal article Journal of Accountancy

Statement on Auditing Standards - Related Parties (Redrafted)

Academic journal article Journal of Accountancy

Statement on Auditing Standards - Related Parties (Redrafted)

Article excerpt

Statement on .Auditing Standards (SAS) Related Parties (Redrafted) supersedes section 334, "Related Parties" of SAS No. 45, Omnibus Statement on Auditing Standards--1983 (AICPA, Professional Standards, vol. 1, AU sec. 334).

CONTENTS

Introduction
Scope of This Statement on Auditing
   Standards/1-2
Nature of Related Party Relationships and
  Transactions/3
Responsibilities of the Auditor/4-7
Effective Date/8
Objectives/9
Definitions/10
Requirements
Risk Assessment Procedures and Related
  Activities/11-17
Identification and Assessment of the Risks of
  Material Misstatement Associated With
  Related Party Relationships and
  Transactions/18-19
Responses to the Risks of Material Misstatement
  Associated With Related Party Relationships
  and Transactions/20-24
Evaluation of the Accounting for, and Disclosure
  of, Identified Related Party Relationships and
  Transactions/25
Communication With Those Charged With
  Governance/26
Documentation/27
Application and Other Explanatory Material
Scope of This Statement on Auditing
  Standards/A1
Nature of Related Party. Relationships and
  Transactions/A2-A7
Risk Assessment Procedures and Related
  Activities/A8-A31
Identification and Assessment of the Risks of
  Material Misstatement. Associated With
  Related Party Relationships and
  Transactions/A32-A34

Responses to the Risks of Material Misstatement Associated With Related Party Relationships and Transactions/A35-A50

Evaluation of the Accounting for, and Disclosure of, Identified Related Party Relationships and Transactions/A51-A52

Communication With Those Charged With Governance/A53

Exhibit: Comparison of Requirements of Statement on Auditing Standards Related Parties (Redrafted) With the Requirements of International Standard on Auditing 550, Related Parties/A54

INTRODUCTION

Scope of This Statement on Auditing Standards

1. This Statement on Auditing Standards (SAS) addresses the auditor's responsibilities relating to related party relationships and transactions in an audit of financial statements. Specifically, it expands on how the clarified SASs Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Redrafted), Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained (Redrafted), and the proposed SAS Consideration of Fraud in a Financial Statement Audit (Redrafted) are to be applied in relation to risks of material misstatement associated with related party relationships and transactions.

2. The proposed SAS Forming an Opinion and Reporting on Financial Statements requires the auditor to evaluate whether the financial statements achieve fair presentation. The proposed SAS Special Considerations--Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks requires that in audits of special purpose financial statements that contain related party transactions, the auditor should evaluate whether the financial statements include informative disclosures similar to those required by generally accepted accounting principles (GAAP). That proposed SAS also requires the auditor to evaluate whether additional disclosures beyond those specifically required by the framework and related to matters that are not specifically identified on the face of the financial statements or other disclosures may be necessary for the financial statements to achieve fair presentation. Thus, this SAS applies to all audits of financial statements. (Ref: par. A1--A4)

Nature of Related Party Relationships and Transactions (Ref: par. A2-A7)

3. Many related party transactions are in the normal course of business. In such circumstances, they may carry no higher risk of material misstatement of the financial statements than similar transactions with unrelated parties. However, the nature of related party relationships and transactions may, in some circumstances, give rise to higher risks of material misstatement of the financial statements than transactions with unrelated patties. …

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