The requirements of the ISA (Ireland) 550 ‘Related Parties’ are most important, given the propensity in recent times, for related parties to commit fraud!
Whilst many firms include a detailed list of related parties and likely transactions, the potential for fraud risk within related party transactions is often overlooked and not fully assessed. The approach adopted by many firms is to reconcile the financial statement disclosures to the accounting records.
Whilst this does test the accuracy and validity of the disclosures, it provides little evidence as to the completeness of the related party disclosures.
The good audit file will document the procedures that have been carried out to ensure that there are no undisclosed related party transactions. For example, the client’s accounting records and minutes of board meetings are scanned to assess the completeness of disclosure.
Where there are significant related party transactions, the standard requires that one must be highly sceptical of the veracity of the transactions.
Then work backwards from there to prove why these transactions are adequately supported with appropriate documentation. Bear in mind that in many SME audits, the primary source of such audit evidence is often the related parties themselves, so a higher degree of scepticism is often called for.
For tailored training sessions explaining more about the ISAs, please send a mail to john@jmcc.ie.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
- Our latest CPD Webinar on The Main Changes in Irish GAAP (recorded July 2024)
- Anti-Money Laundering Policies Controls and Procedures Manual (March 2022) — View the table of contents
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion you receive a CPD certificate for attendance in your inbox.
- Letters of engagement and similar templates—Please visit our website here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items bought together.
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
