CA Inter P5 · Chapter 4 · Question 14 of 14
During the audit of Chaitra Retail Ltd., the auditor finds a significant transaction with an entity controlled by a director's spouse, which management had not disclosed as a related party. Under SA 550, the auditor shall:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Promptly communicate the information to the engagement team, request management to identify all such transactions, and reconsider the risk of other undisclosed related parties
Explanation
SA 550 requires the auditor, on identifying previously unidentified or undisclosed related parties or significant related party transactions, to communicate this to the engagement team, request management to identify all such transactions, inquire why controls failed, perform appropriate substantive procedures and reconsider the risk that other related parties exist. If non-disclosure appears intentional, the auditor evaluates the implications for the audit.
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