This document discusses related parties and related party transactions that must be identified, accounted for, and disclosed in financial statements under Indian accounting standards. It defines related parties as individuals or entities that have control or significant influence over a reporting entity. It provides examples of close family members and key management personnel that are considered related parties. It also describes the auditor's objectives and procedures for identifying related parties and related party transactions, obtaining management representations, and evaluating compliance with disclosure requirements.

1. AUDITING
SA – 550 RELATED PARTY

2. WHAT IS A RELATED PARTY
That is related to the Entity
That is preparing its Financial Statements (referred to as the 'Reporting Entity').
• Individuals who are related parties o A person Or o A close member of that Person's
family Is related to a Reporting Entity if that Person:
• Has Control or Joint Control of the Reporting Entity;
• Has Significant Influence over the Reporting Entity; or
• Is a member of the Key Management Personnel of the
(a) Reporting Entity
Or
(b) Of a Parent of the Reporting Entity.

3. • Entities which are related parties
• An entity is related to a Reporting Entity if any of the following conditions applies:
• The Entity and the Reporting Entity are members of the same group
• One entity is an Associate or Joint Venture of the Other Entity
• Both entities are Joint ventures of the same third party.
• One entity is a Joint venture of a third entity and the other entity is an Associate of
the third entity.
• The entity is a post-employment benefit plan for the benefit of employees of Either
the
Reporting Entity
Or
An entity related to the Reporting Entity

4. CLOSE MEMBERS OF THE FAMILY
Family members who may be expected: To influence Be influenced
By that person in their dealings with the Entity including:
• (a) That person's:
• Children
• Spouse or Domestic partner
• Brother
• Sister
• Father and Mother
• (b) Children of that person's • Spouse or Domestic partner
• (c) Dependants of that: Person or Person's spouse or Domestic partner

5. KEY MANAGEMENT PERSONNEL
Key management personnel are:
Those persons having authority and responsibility for:
• Planning
• Directing and
• Controlling o The activities of the entity
• Directly or Indirectly
• Including any Director (whether executive or otherwise) Of that
entity

6. RELATED PARTY TRANSACTIONS
• A related party transaction is a:
• Transfer of:
Resources
Services or
Obligations Between
Reporting entity and Related party
Regardless of whether a price is charged

7. EXAMPLES
OF
RELATED
PARTY

10. AUDITORS OBJECTIVE
• To obtain an understanding of related party relationships &
transactions sufficient to be able to recognize fraud risk factors;
• To obtain evidence that whether the entity
follows the FRF (AS 18) i.e. appropriately identified, accounted for
and disclosed in the financial statements as per FRF.
• The management is responsible for identification of related party. The
auditor should validate the procedures followed by the management in
identifying the related party.

11. AUDITORS PROCEDURES
The auditor shall:-
• Obtain an understanding of entities related party relationships and
transactions;
• Maintaining alertness for related party information during the audit;
• Sharing related party information with the Engagement Team.

12. The auditor can identify the related party by the following:-
• Review his working papers of previous years to know the names of
related party.
• Review the entities procedures for identification.
• Review MOA, AOA minutes books of meetings and other statutory
records such as register directors interest.
• Inquire with internal auditor, cost auditor, special auditors, and c
oncurrent auditors as they already know about the related parties.

13. • Review the joint venture and other agreement entered into by the
entity.
• Review the entities Income tax returns and other information sup
plied to the regulatory authorities.
• Review as to affiliation of directors, key managerial personnel and
officers with other entities etc.
• Finally auditor should obtain the written representation from the
management about the completeness of information provided regarding
the related parties.

14. WRITTEN REPRESENTATION
The auditor shall obtain Written Representation from
management & TCWG that they have:- Disclosed to
auditor the identity of entities RP and all RP
relationships & transactions of which they are aware;
and Appropriately accounted
for & disclosed such relationships and transactions
by FRF (AS 18).

15. Case study
• Case Study I:
• Exemption from disclosure
• Government G directly or indirectly controls Entities 1 and 2 and Entities A, B, C and
D. Person X is a member Of the key management personnel of Entity 1.

16. In Entity A's financial statements, an example of disclosure could be:
• Example of disclosure for individually significant transaction carried out on
non-market terms
On 15 January, 2017 Entity A, a utility company in which Government G indirectly owns 75
per cent of outstanding shares, sold a 10-hectare piece of land to another Government-
related utility company for Rs. 5 million.
On 31 December, 2016 a plot of land in a similar location, of a similar size and with similar
characteristics, was sold for Rs. 3 million. There had not been any appreciation or
depreciation of the land in the intervening period.
• Example of disclosure for individually significant transaction because of size of
transaction
In the year ended December 2017 Government G provided Entity A, a utility company in
which Government G indirectly owns 75 per cent of outstanding shares, with a loan
equivalent to 50 per cent of its funding requirement, repayable in quarterly instalments
over the next five years.
Interest is charged on the loan at a rate of 3 per cent, which is comparable to that charged
on Entity A ts bank.