Audit procedures for related-party risks
Connect unusual relationships and transactions to the risk assessment, targeted procedures, business purpose, authorization, and disclosure.
The decision that earns the point
Identify the engagement facts and governing framework
Related-party procedures identify relationships and transactions, understand their terms and business purpose, assess misstatement and fraud risk, test accounting and disclosure under the applicable financial-reporting framework, and respond to previously undisclosed parties. A family or ownership fact prompts investigation but does not establish related-party status under every framework by itself.
Exam use
AUD can test management inquiry, minutes, conflict statements, contracts, unusual transactions, authorization, disclosure, fraud risk, and the response to a newly identified relationship.
Your scratch-paper plan
Solve it in three moves
- 1
Understand management's process
Learn how the company identifies, authorizes, accounts for, and discloses related parties and transactions.
PCAOB AS 2410: Related Parties - 2
Test completeness beyond inquiry
Use minutes, contracts, conflict information, unusual transactions, and other evidence to identify omitted relationships.
PCAOB AS 2410: Related Parties - 3
Apply the reporting framework
Establish whether the relationship is a related party under the applicable financial-reporting framework before evaluating accounting, disclosure, and report effects.
PCAOB AS 2410: Related Parties
Worked problem
Work the facts before choosing the answer
CPAPass illustration assumptions: this is a PCAOB issuer audit, and facts establish under the issuer's applicable financial-reporting framework that an entity controlled by the chief executive's sibling is a related party. Board minutes disclose a major purchase from that entity, but management omitted it from the related-party list.
CPAPass original exam illustration using stated assumptions
Show the work
The omission requires procedures over the relationship, transaction terms and business purpose, approval, accounting, disclosure, management's process, completeness of other information, and related fraud risks.
Rule source: PCAOB AS 2410: Related PartiesAnswer
Perform targeted procedures, reassess related-party and fraud risks, evaluate accounting and disclosure under the reporting framework, and communicate the matter as required rather than accepting the transaction as ordinary based only on price.
Rule source: PCAOB AS 2410: Related PartiesDo it now
Test the same decision with a fresh question
Start with free AUD practice. Create an account only when you want the 5-day no-card CPAPass trial and continued section practice.
The trap and the repair
Common trap
Limiting the search to management inquiry assumes the completeness that the audit procedures are designed to test.
Repair
Reconcile management information to independent records and investigate relationships or unusual transactions revealed by those sources.
Related-party response map
Identification, accounting status, and audit response are separate conclusions
A relationship clue starts the work. The financial-reporting framework determines status, and the audit framework determines the response.
| Stage | Question | Output | Authority |
|---|---|---|---|
| Identification | What relationships, minutes, contracts, conflict information, or unusual transactions exist? | Complete population for investigation | PCAOB AS 2410: Related Parties |
| Accounting status | Does the relationship meet the applicable financial-reporting framework definition? | Related-party classification and disclosure requirements | PCAOB AS 2410: Related Parties |
| Audit response | What procedures, risk revisions, fraud considerations, and governance communications follow? | Evidence and communication response | PCAOB AS 2410: Related Parties |
| Nonissuer engagement | What does current AU-C 550 require for the same facts? | Nonissuer-specific procedure and conclusion | AICPA AU-C 550: Related Parties |
After a miss
Repair a related-party completeness miss
- 1
Separate relationship clue, accounting-framework status, transaction evidence, disclosure, and fraud-risk effect.
- 2
Rework the illustration without the assumption that related-party status is established and list the investigation needed before concluding.
- 3
Answer a fresh AUD related-party question and identify both the reporting-framework definition and the audit-framework response.
Your exam workflow
- Step 1Read the requirementIdentify what the task asks you to decide about related party audit procedures.
- Step 2Sort the factsLearn how the company identifies, authorizes, accounts for, and discloses related parties and transactions.
- Step 3Apply the ruleUse minutes, contracts, conflict information, unusual transactions, and other evidence to identify omitted relationships.
- Step 4Check the outputEstablish whether the relationship is a related party under the applicable financial-reporting framework before evaluating accounting, disclosure, and report effects.
Keep the next step narrow
Quick questions
What is the shortest useful answer for related party audit procedures?
Related-party procedures identify relationships and transactions, understand their terms and business purpose, assess misstatement and fraud risk, test accounting and disclosure under the applicable financial-reporting framework, and respond to previously undisclosed parties. A family or ownership fact prompts investigation but does not establish related-party status under every framework by itself.
How can related party audit procedures appear on the CPA Exam?
AUD can test management inquiry, minutes, conflict statements, contracts, unusual transactions, authorization, disclosure, fraud risk, and the response to a newly identified relationship. The exact task can change, so identify the governing facts before applying the rule.
What is the most common mistake with related party audit procedures?
Limiting the search to management inquiry assumes the completeness that the audit procedures are designed to test. Reconcile management information to independent records and investigate relationships or unusual transactions revealed by those sources.
Where should I practice related party audit procedures?
After the worked example, use AUD practice for a fresh question that requires the same decision. If the miss depends on audit procedures by evidence objective, review that handoff before trying another set.
How should I review related party audit procedures after a missed question?
Separate relationship clue, accounting-framework status, transaction evidence, disclosure, and fraud-risk effect. Rework the illustration without the assumption that related-party status is established and list the investigation needed before concluding. Answer a fresh AUD related-party question and identify both the reporting-framework definition and the audit-framework response.