SondraStark_Unit8_Auditing410_02

SondraStark_Unit8_Auditing410_02 - 14-39 a. Related entity...

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Unformatted text preview: 14-39 a. Related entity transactions are defined as transactions between a corporation or owners of a corporation and another corporation or owners that are affiliated with t he former corporation. Affiliation is usually determined by the percentage of ownership between corporations and their owners. While related-entity t ransactions typically come under scrutiny, they are allowed in most circumstances. However, when they occur, t hey must be approved by the Board of Directors, approved by auditors, and disclosed to the public. While these rules apply especially to public companies, they can also have implications for private companies. For i nstance, private companies engaging in related-entity transactions will be scrutinized by lenders and investors. b. From the auditor ’s perspective, related-party transactions have two distinct, but not m utually exclusive, aspects: adequate disclosure and fraud detection. Some relatedparty transactions may be the direct result of the relationship. Without that relationship, the transaction might not have occurred at all or might have had substantially different terms. Thus, disclosure of the nature and amount of t ransactions with related parties is necessary for a proper understanding of the f inancial statements. Inadequate disclosure of related-party transactions may result i n misleading financial statements, and so the auditor should be concerned with identifying such transactions in the audit and evaluating the adequacy of disclosure of them . 14-43 a. a defense that is based on evidence sufficient to warrant setting aside a default judgment against the defendant in civil litigation b. guarantee debts of others c. litigation and claims ...
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