Skip to content

ACCA Strategic Professional · Advanced Audit and Assurance (International) · Audit procedures and obtaining evidence

During the audit of Brightwell plc, the auditor discovers that a major supplier is owned by the spouse of a non-executive director. The transactions were not disclosed by management in the related party list. Which action best reflects ISA 550?

The auditor should tell the engagement team, ask management to identify all transactions with the newly found related party, and reassess risks including fraud. Similar pricing does not remove the disclosure requirement, and the matter would also be communicated to those charged with governance, not directly to shareholders.

  1. AIgnore the matter because the transactions were at prices similar to other suppliers
  2. BCommunicate the information promptly to the engagement team, request management to identify all transactions with this party, and consider the implications for the risk assessment and fraud riskCorrect
  3. CReport the matter directly to the shareholders in the audit report without discussing with management
  4. DTreat the transactions as ordinary trade payables and perform no further work

Explanation

ISA 550 requires the auditor to share information about undisclosed related parties with the team, ask management to identify all transactions with the party, consider why controls failed to identify it, and reassess fraud risk. Pricing similarity does not remove the need for disclosure. Reporting directly to shareholders without engagement with management and those charged with governance is not the required response.

Did you get it right without looking?

One question tells you little. A timed set on Audit procedures and obtaining evidence shows your real accuracy, how long you take and where you lose marks.

Practise Audit procedures and obtaining evidenceFree diagnostic mock

More Audit procedures and obtaining evidence questions