Related party transaction

Generally up to 1½ marks for each matter and up to 1 mark for each evidence point explained:

Matters:

– Hannah is a member of key management personnel and therefore a related party
– Auditor required to review documents and to consider whether transaction authorised
– Materiality should not be based solely on monetary calculations – it is material by nature
– The amount is outstanding and may need to be written off
– Disclosure needed in notes to financial statements
– Implications for audit report if appropriate disclosure not made

Evidence:

– A review of the notes to the financial statements to confirm that sufficient disclosure has been made
– A copy of the invoice raised, and agreement to the receivables ledger 
– A copy of any contract or other document pertaining to the sale of the car to Hannah, and a review of its terms and conditions
– A post year-end review of the bank statement and cash books to confirm if the amount has been received subsequent to the year end
– Confirmation that the carrying value of $50,000 has been removed from the non-current asset register and general ledger
– Confirmation that profit or loss on disposal has been included in profit or loss
– A review of board minutes to confirm the transaction was appropriately authorised
– A written representation from management

Maximum marks 7