Meaning Of Related Party

Entities that are under common control by a state (i.e., a national, regional or local government) are not considered related unless they engage in signiﬁcant transactions or share resources to a signiﬁcant extent with one another.

A related party is either:

a	A person or entity	A person or other entity that has control or signiﬁcant inﬂuence, directly or indirectly through one or more intermediaries, over the reporting entity
b	Cotrolled entity by reporting company	Another entity over which the reporting entity has control or signiﬁcant inﬂuence, directly or indirectly through one or more intermediaries.
c	Both controlled by another entity or person.	Another entity that is under common control with the reporting entity through having:
i		Common controlling ownership
ii		Owners and others are close family members ; or
iii		Common keymanagement
d		However, entities that are under common control by a state (i.e., a national, regional or local government) are not considered related unless they engage in signiﬁcant transactions or share resources to a signiﬁcant extent with one another.

Nature Of Related Party Relationship Transactions

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 parties.

Some examples of relationship of related party

1	Cpmlex Relation	Related parties may operate through an extensive and complex range of relationships and structures, with a corresponding increase in the complexity of related party transactions.
2	Ineffective information system	Information systems may be ineffective at identifying or summarising transactions and outstanding balances between an entity and its related parties.
3	No consideration transaction	Related party transactions may not be conducted under normal market terms and conditions; for example, some related party transactions may be conducted with no exchange of consideration.

Responsibilities Of The Auditor regarding related party.

The potential effects of inherent limitations on the auditor's ability to detect material misstatements are greater because of reasons such as the following:

Because related parties are not independent of each other, financial reporting frameworks establish specific accounting and disclosure requirements for related party relationships, transactions, and balances to enable users of the financial statements to understand their nature and actual or potential effects on the financial statements. Therefore, the auditor has a responsibility to perform audit procedures to identify, assess, and respond to the risks of material misstatement arising from the entity's failure to appropriately account for or disclose related party relationships, transactions, or balances.

Owing to the inherent limitations of an audit, an unavoidable risk exists that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with generally accepted auditing standards (GAAS).In the context of related parties, the potential effects of inherent limitations on the auditor's ability to detect material misstatements are greater because of reasons such as the following:

Unawreness

Management may be unaware of the existence of all related party relationships and transactions.

Collusion ,Cocealment and manupuation

Related party relationships may present a greater opportunity for collusion, concealment, or manipulation by management.

Professional skepticism as required bySA 200

According to SA 200.

Planning and performing the audit with professional skepticism as required.SA 200 requires potential for undisclosed related party relationships and transactions. The requirements in this SA are designed to assist the auditor in identifying and assessing the risks of material misstatement associated with related party relationships and transactions, and in designing audit procedures to respond to the assessed risks.

Concept - Concept Of True And Fair

The concept of true and fair is a fundamental concept in auditing. The phrase “true and fair” in the auditor’s report signifies that the auditor is required to express his opinion as to whether the state of affairs and the results of the entity as ascertained by him in the course of his audit are truly and fairly represented in the accounts under audit. This requires that the auditor should examine the accounts with a view to verify that all assets, liabilities, income and expenses are stated as amounts which are in accordance with accounting principles and policies which are relevant and no material amount, item or transaction has been omitted.

What constitutes a ‘true and fair’ view is a matter of an auditor’s judgment in the particular circumstances of a case.

In more specific terms, to ensure true and fair view, an auditor has to see:

1	Assets are properly valued	that the assets are neither undervalued or overvalued, according to the applicable accounting principles,
2	No omission of asssets	No material asset is omitted
3	Charge on assets disclosed	The charge, if any, on assets are disclosed
4	No omission of materlal liabilities	Material liabilities should not be omitted;
5	Proper disclosur in balance sheet and p/L account	The profit and loss account and balance sheet discloses all the matters required to be disclosed;
6	Accounting policy consistent	Accounting policies have been followed consistently
7	All items disclosed	All usual, exceptional or non-recurring items have been disclosed separately.

Concept - Auditor And Subsequent Events

Meaning of subsequent events

Subsequent .

Events occurring between the date of the ﬁnancial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.

There are four stages in an audit;

Stage 1	Starting of an audit
Satge 2	Date of financial statement as on 31^st march
Stage 3	Date of auditor’s report in framework of company’s act rule
Stage 4	Annual general meetings –

let us take one more example.

Concept - Objectives of auditors in case of subsequent events.

Objectives of auditor in regard of subsequent events

Appropriate adjustment in financial year

Auditor objective Obtain sufficient appropriate audit evidence about whether events occurring between the date of the financial statements and the date of the auditor's report that require adjustment of, or disclosure in, the financial statements are appropriately reflected in those financial statements

Response to unknown facts

Objective is to response appropriately to facts that become known to the auditor after the date of the auditor's report, that, had they been known to the auditor at that date, may have caused the auditor to amend the auditor's report.

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