## Related Parties – SA 550: Nature, Risks, and Auditor Responsibilities
### Special Purpose Entities (SPEs) as Related Parties
A Special Purpose Entity (SPE) may be a related party even if the entity owns little or none of the SPE's equity. What matters is substance of control, not legal ownership percentage.
### Nature of Related Party Transactions
Most related party transactions occur in the normal course of business and carry no higher risk of material misstatement than unrelated-party transactions.
However, certain situations elevate the risk:
| Risk Factor | Explanation |
|---|---|
| Complex structures | Extensive networks increase transaction complexity |
| Ineffective information systems | Systems may fail to identify or summarise related party balances |
| Non-market terms | Transactions may occur without normal market conditions (e.g., no consideration exchanged) |
### Auditor's Inquiries to Management
The auditor shall inquire management about:
1. Identity of related parties (including changes from prior period)
2. Nature of relationships with those related parties
3. Whether the entity entered into transactions with related parties — if so, the type and purpose
The auditor shall also inquire management and perform risk assessment procedures to understand controls over:
1. Identifying, accounting for, and disclosing related party relationships/transactions per AFRF
2. Authorising and approving significant transactions with related parties
3. Authorising and approving significant transactions outside the normal course of business
### Verifying Related Party Relationships – Documents to Inspect
The auditor may inspect the following to identify related parties and transactions:
1. Entity income tax returns
2. Information supplied to regulatory authorities
3. Shareholder registers (to identify principal shareholders)
4. Statements of conflicts of interest from management and TCWG
5. Records of entity's investments
6. Contracts/agreements with Key Management Personnel and TCWG
7. Significant contracts not in the ordinary course of business
8. Invoices and correspondence from professional advisers
9. Life insurance policies acquired by the entity
10. Internal auditor's reports
11. Significant contracts re-negotiated with the entity
12. Documents filed with the securities regulator