Ben and Alex Bradley have a sister, Jo, who runs an interior design company, Lantern Co. During a review of board minutes, performed as part of the planning of Bill Co’s audit, it was discovered that Bill Co has paid $225,000 to Lantern Co during the year, in respect of refurbishment of development properties. On further enquiry, it was also found that Lantern Co leases an office space from Bill Co, under an informal arrangement between the two companies.

Required:

(i) Explain the inherent limitations which mean that auditors may not identify related parties and related party transactions; and (4 marks)

(ii) Recommend the audit procedures to be performed in relation to Bill Co’s transactions with Lantern Co. (4 marks)