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Auditing related-party transactions
Home > OnTarget CPA Blog > Accounting and Auditing > Auditing related-party transactions
11 Jun Auditing related-party transactions
Business owners generally prefer to work with entities they know and trust. But related-party transactions can provide opportunities for individuals to act in a manner that's inconsistent with the interests of shareholders. That's why auditors take pains to identify and properly address related-party transactions.
What is a related party?
Accounting Standards Codification (ASC) Topic 850 defines a related-party transaction as one that takes place between:
A parent entity and its subsidiaries,
Subsidiaries of a common parent,
An entity and trusts for the benefit of its employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of the entity's management,
An entity and its principal owners and managers (or members of their immediate families), and
Affiliated entities.
What's the risk?
Related-party transactions sometimes involve contracts for goods or services that are priced at less (or more) favorable terms than those in similar arm's length transactions between unrelated third parties. For example, a spinoff business might lease office space from its parent company at below-market rates. Or a closely held manufacturer might pay the owner's son an above-market salary and various perks that aren't available to unrelated employees.
How do auditors address these transactions?
Given the potential for double dealing with related parties, auditors spend significant time hunting for undisclosed related-party transactions. Examples of documents and data sources that can help uncover these transactions are:
A list of the company's current related parties and associated transactions,
Minutes from board of directors' meetings, particularly when the board discusses significant business transactions,
Disclosures from board members and senior executives regarding their ownership of other entities, participation on additional boards and previous employment history,
Bank statements, especially transactions involving intercompany wires, automated clearing house (ACH) transfers, and check payments, and
Press releases announcing significant business transactions with related parties.
Audit procedures that target related-party transactions include 1) testing how related-party transactions are identified and coded in the company's enterprise resource planning (ERP) system, 2) interviewing accounting personnel responsible for reporting related-party transactions in the company's financial statements, and 3) analyzing presentation of related-party transactions in financial statements.
Accurate, complete reporting of these transactions requires robust internal controls. A company's vendor approval process should provide guidelines to help accounting personnel determine whether a supplier qualifies as a related party and mark it accordingly in the ERP system. Without the right mechanisms in place, a company may inadvertently omit a disclosure about a related-party transaction.
Get it right
Undisclosed related-party transactions can raise a red flag to lenders and investors — and may even require a business to restate its financial results. Our auditors are committed to finding, disclosing and reporting these transactions in a transparent manner that complies with U.S. Generally Accepted Accounting Principles (GAAP). Contact us for help.


Abstract: (shortened) Direct N-body calculations are presented of the formation of Galactic clusters using GasEx, which is a variant of the code Nbody6. The calculations focus on the possible evolution of the Orion Nebula Cluster (ONC) by assuming that the embedded OB stars explosively drove out 2/3 of its mass in the form of gas about 0.4 Myr ago. A bound cluster forms readily and survives for 150 Myr despite additional mass loss from the large number of massive stars, and the Galactic tidal field. This is the very first time that cluster formation is obtained under such realistic conditions. The cluster contains about 1/3 of the initial 10^4 stars, and resembles the Pleiades Cluster to a remarkable degree, implying that an ONC-like cluster may have been a precursor of the Pleiades. This scenario predicts the present expansion velocity of the ONC, which will be measurable by upcoming astrometric space missions (DIVA and GAIA). These missions should also detect the original Pleiades members as an associated expanding young Galactic-field sub-population. The results arrived at here suggest that Galactic clusters form as the nuclei of expanding OB associations.


In the nick of time, at the height, or depth, of the NBA's dog days, here comes the NCAA Tournament to let us all scout the future.
Not that college basketball is an adjunct to the NBA … even if NBA people think it is, as when former Bulls great Scottie Pippen, speaking for the mercenary way, advised Duke phenom Zion Williamson to shut down his college career in February after spraining a knee.
Happily for all except the Blue Devils' opponents, Williamson returned for this week's ACC Tournament, looking like his oversized-teddy-bear-dunking-on-your-head self as he made all 13 of his shots in a win over Syracuse, with hops no one has seen on such a killer whale since Charles Barkley.
Spectacular and adorable, Zion is a new phenomenon, the most hyped prospect of the social media era.
LeBron James, now the king, literally, with 42 million Twitter followers, was a tad early, even as the most hyped high school player ever in 2003, three years before Twitter launched.
Zion's popularity drives press coverage and makes him the rarest of all phenomenons in NCAA basketball, a box office hit who sells out arenas … but guarantees nothing. Social media's biggest hype before Zion was high-jumping Andrew Wiggins, who didn't rock anyone's world in college at Kansas and hasn't in the NBA with Minnesota.
Williams has issues. As fabulous as he is at this level, his 6-foot-7 listing in sneakers means he's probably 6-5½. Not that he has needed it at Duke, but he doesn't even have 15-foot range as a shooter, much less make 3-pointers (14 for 48, a 29 percent mark).
Amazingly, an Eastern Conference GM told me he thinks Zion might have gone No. 5 in last spring's draft behind NBA-ready prospects Deandre Ayton, Marvin Bagley, Luka Doncic and Jaren Jackson.
Nevertheless, it's also true that skill levels keep going up. More and more talented players keep arriving … even if some years, like this, you might have as good a chance of selecting a future star at No. 12 as you do at No. 3.
In any year, some draftees will break out to the upside, such as Kyle Kuzma at No. 27. Some will surprise to the downside, such as Lonzo Ball at No. 2.
With all he has, he's also an all-out, dive-on-the-floor guy, suggesting a great attitude, and amazingly quick for his size. If questions about his shooting won't be answered soon, early indications look good.
He moved up when the other top prospects moved down. Great athlete, great length but only an entry-level 3-point shooter at 33.6 percent. He gets compared to Sacramento's De'Aaron Fox, suggesting that he's nice but not transcendent.
Supposedly No. 1 before the season until Zion happened. He has good size and strength for his shooting guard position, but he isn't explosive athletically. He has an Alpha Dog personality, relentlessly attacking the hoop. Admirers see James Harden but comparing prospects to all-time greats is Looney Tunes. Skeptics see someone closer to Tyreke Evans. He needs a good outside shot to be special, although he thinks he already has one, attempting 6.4 3-point shots per game while making only 31.4 percent.
With the Dookies ranked Nos. 1-2-3 in their recruiting class, Reddish has become the after-thought, largely reduced to a spot-up shooter who, despite his prep reputation, is making only 33 percent from 3-point range. Pros say he's better than he looks. He's a good athlete who defends and can make plays.
Another sophomore making a big jump with all the room opening up at the top. Physical small forward, averaging 15 points per game, shooting 53 percent from the field and 48 percent from 3-point range.
He's a scorer (16.7) but not an outside shooter (27.5 percent from 3-point range).
He gets compared favorably to last season's shot-blocking Longhorn, Mo Bamba, who bombed out in Orlando as the No. 6 pick amid questions about how badly he wants it. Hayes, a late comer, is considered a safer bet, at least as far as his attitude.
He was an impressive-looking point guard before a knee injury ended his college career after five games. He's still projected to go in the top 10.
If this class is disappointing, he could be the poster child. Despite his huge prep rep and NBA-ready body, he has done little, averaging 18 minutes and 9.3 points as a reserve. He's still projected to go in the top 10. Defenders suggest he's a victim of North Carolina's depth, but you don't see many, or any, wing players who haven't shown more than he has ranked this high.
He's making a big jump from role player as a freshman. He's a combo guard averaging 19 points, but he's yet another entry-level shooter at 34 percent on 3-point attempts. He's a good but not great athlete.
The top-ranked Euro in this class is athletic but raw. If U.S fans think Europeans can all bang down 3-pointers, he's more of a developing power forward with no resemblance to last spring's breakout star, Dallas' Luka Doncic.
Well, he's certainly tall. He's projected in the lottery but the modern game's mixed expectations of young bigs makes it hard for more promising ones than him – like Bamba. He played nine games, averaging a good-but-not-awesome 2.7 blocked shots, but he shut it down after a leg injury and announced he would turn pro. This was his fifth school in five years after attending four high schools, including Mater Dei. Now to see if he makes it to year two in an NBA city.


This article contains Dream11 tips for Mumbai Indians v Royal Challengers Bangalore game.
Mumbai Indians will take on Royal Challengers Bangalore in the IPL T20 game on April 15 in Mumbai. TFG fantasy sports brings you tips and tricks for this fantasy round. The game will start at 8.00 p.m. IST.
Mumbai will be the favourites going into this game as they have a better overall record and also they beat RCB in the this years first meeting in Bangalore.
J Bumrah has got 16 wickets for Mumbai against RCB in the IPL.
K Pollard has scored more than 450 runs against RCB in the IPL.
Evin Lewis opened the batting and score 65.
Rohit got 94 batting at no.4.
In reply, Virat opened the batting and scored 92.
Krunal Pandya picked up 3 wickets as Mumbai beat Bangalore.
Rohit Sharma is 40 short of 8000 runs overall in T20s.


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