(i) Limitation on identification of related party relationships and transactions

1 mark each point explained (to maximum 4 marks):

– Management not aware of relationship or transaction
– Subjectivity/complexity in deciding on who or what is a related party
– Deliberate concealment of relationship or transaction
– Accounting systems do not specifically identify related party transactions
– Transactions at nil value especially hard to detect

(ii) Audit procedures

1 mark each specific procedure (to maximum 4 marks):

– Review invoices/inspect cash book to confirm amount of cash paid
– Review payables ledger to confirm any amount outstanding
– Consider if transaction is arm’s length by comparing value to non-related party transaction
– Discuss/obtain written representation on details of informal lease
– Review any written documentation that may exist regarding the lease
– Review disclosures on draft financial statements

Maximum marks 8