CAF-8 · Chapter 11 · Question 1 of 10
According to ISA 550, why do Related Party (RP) transactions pose a higher risk of material misstatement?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Because RP transactions may not be conducted under normal market terms (arm's length) and can be used to manipulate financial results.
Explanation
Related parties (like family members or parent companies) can influence each other to set prices that wouldn't exist between independent parties, which can be used to hide losses or shift profits.
More Related Party Transactions MCQs
- Q3Which of the following is an example of a Related Party for a corporate audit client?
- Q4During the audit, the auditor discovers a significant transaction with a company that was not disclosed as a related party by management…
- Q5Which of the following audit procedures would most likely help an auditor identify undisclosed related party transactions?
- Q6What is the primary disclosure requirement for Related Party transactions under IAS 24?
- Q7An auditor notices that a client sold a building to its majority shareholder for 10% of its market value. What is the most significant…