Importance of Related Party Transactions

Whenever the existence of about transactions and parties among such parties are considered ordinary features of business, the auditor requires being aware of them since:

a) The financial reporting framework may need disclosure in the financial statements of certain related party transactions and relationships, such that required with IAS 24;

b) The related party transactions or existence of related parties may affect the financial statements. Let an example, the entity's tax expense and liability may be affected through the tax laws in various jurisdictions that require special consideration while related parties exist;

c) The basis of audit evidence effects the auditor's assessment of its expenses and reliability. A greater degree of reliance may be placed at audit evidence which is created through or obtained from unrelated third parties; and

d) A related party transaction might be motivated through other than ordinary business considerations, let an example, even fraud and profit sharing.