Related Parties - Approach and Treatment

Author:ec. Carmen MATARAGIU

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Keywords:related parties, transactions, control, identifying, examining, valuation, materiality, consolidation, fraud, pensions fund

Abstract:
The business rhythm and complexity, but also the more and more developed capital structure have promoted related parties transactions from the range of usual transaction, which initially were not included in the coverage area of the accounting profession, in the category of transactions which imposed a change in attitude for the accounting profession and also the elaboration of adequate law provisions regarding presentation and audit.\r\nThe need for legislation appeared towards the end of the 60’s in USA, when Continental Vending unfolded a series of transactions which were later qualified as fraudulent and in the UK after the Maxwell scandal.\r\nRelated parties transactions may give rise to opportunities for fraudulent reporting by the management. One of the most important and present difficulties in the audit of financial statements is identifying the related parties and the transactions with related parties. \r\nGiven the complexity, the accounting and adequate auditing of related parties transactions, the accounting professional must acquire the proper understanding by thorough examination of the transactions.\r\nThe auditor’s liability gains an increased importance when related parties transactions were registered for the sole purpose of fraud. \r\nFrom the auditor’s perspective, the existence of related parties and of related parties transactions gains importance for the evaluation of the given appropriate presentation but also for the drafting of consolidated financial statements for the companies in which control is exerted directly or indirectly as a result of the participating interest held, but also for those which even if apparently are not controlled by the mother company should be included in the consolidation perimeter. \r\nThe liability of the auditor increases when related parties transactions were unfolded for the sole purpose of fraud.\r\n

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