Bell Manufacturing Ltd. has undergone a restructuring during the current year resulting in changes in key personnel and ownership interests. The…
CA Intermediate · Auditing and Ethics · MTP · January 2026
Bell Manufacturing Ltd. has undergone a restructuring during the current year resulting in changes in key personnel and ownership interests. The auditor observes that several new parties have become related to the entity due to these changes. During the audit, the auditor also notices a few transactions that appear unusual and possibly outside the normal course of business. Management states that all related party relationships and transactions have been properly identified and recorded. Explain, with reference to SA 550, inquiries the auditor should make of management and the additional audit procedures to be performed in relation to related parties and related party transactions in this situation.
Suggested Answer and Working Notes:
According to SA 550 on “Related Parties”, the auditor shall inquire of management regarding: (i) The identity of the entity’s related parties, including changes from the prior period. (ii) The nature of the relationships between the entity and these related parties; and (iii) Whether the entity entered into any transactions with these related parties during the period and, if so, the type and purpose of the transactions. The auditor shall inquire of management and others within the entity, and perform other risk assessment procedures considered appropriate, to obtain an understanding of the controls, if any, that management has established to - (i) Identify, account for, and disclose related party relationships and transactions in accordance with the applicable financial reporting framework; (ii) Authorise and approve significant transactions and arrangements with related parties; and (iii) Authorise and approve significant transactions and arrangements outside the normal course of business.
Topics: Audit Evidence
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