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 Standard on Internal Audit (SIA) 18, Related Parties
 Standard on Internal Audit (SIA) 17, Consideration of Laws and Regulations in an Internal Audit
 Standard on Internal Audit (SIA) 16, Using the Work of an Expert
 Standard on Internal Audit (SIA) 14, Internal Audit in an Information Technology Environment
 Standard on Internal Audit (SIA) 13, Enterprise Risk Management
 Standard on Internal Audit (SIA) 12, Internal Control Evaluation
 Standard on Internal Audit (SIA) 11, Consideration of Fraud in an Internal Audit
  Standard on Internal Audit (SIA) 9, Communication with Management
  Standard on Internal Audit (SIA) 8, Terms of Internal Audit Engagement
 Standard on Internal Audit (SIA) 7, Quality Assurance in Internal Audit
 Standard on Internal Audit (SIA) 6, Analytical Procedures

Standard on Internal Audit (SIA) 18, Related Parties
November, 28th 2018
                 Standard on Internal Audit (SIA) 18
                                     Related Parties




The Institute of Chartered Accountants of India
           (Set up by an Act of Parliament)
                     New Delhi
© The Institute of Chartered Accountants of India

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form, or by any means, electronic
mechanical, photocopying, recording, or otherwise, without prior permission, in
writing, from the publisher.




Edition               :    January, 2013


Committee/            :    Internal Audit Standards Board
Department


Email                 :    cia@icai.org


Website               :    www.icai.org/ www.internalaudit.icai.org


Price                 :    `25.00


ISBN                  :    978-81-8441-624-4


Published by          :    The Publication Department on behalf of
                           The Institute of Chartered Accountants of India,
                           ICAI Bhawan, Post Box No.7100, Indraprastha Marg
                           New Delhi ­ 110 002

Printed by            :    Sahitya Bhawan Publications,         Hospital   Road,
                           Agra-282 003
                           February/ 2013 / 1000 Copies
           STANDARD ON INTERNAL AUDIT (SIA) 18
                   RELATED PARTIES
                                               Contents
                                                                                           Paragraph(s)


Introduction ............................................................................................. 1-2
Definitions .................................................................................................3-4
Related Party Transactions ...................................................................... 5-6
Internal Audit Procedures....................................................................... 7-15
Effective Date ......................................................................................... 16


The following is the text of the Standard on Internal Audit (SIA) 18, Related
Parties, issued by the Institute of Chartered Accountants of India. The
Standard should be read in the conjunction with the " Preface to the
Standards on Internal Audit ", issued by the Institute of Chartered
Accountants of India.
In terms of the decision taken by the Council of the Institute at its
260th meeting held in June 2006, the following Standard on Internal Audit
shall be recommendatory in nature in the initial period. The Standard
shall become mandatory from such date as may be notified by the Council in
this regard.
Introduction
1.   The purpose of this Standard on Internal Audit (SIA) is to establish
     standard and provide guidance on the procedures to be followed by
     the internal auditor in ensuring that related party activities of the
     entity are properly captured through internal controls; and that related
     party activities are consistent with the entity's code of conduct and
     conflict of interest policy, applicable laws and regulations and
     disclosure requirements.
2.   Management is responsible for the identification and disclosure of
     related parties and accounting for the related party transactions. This
     responsibility requires management to implement adequate internal
     control to ensure that transactions with related parties are
     appropriately identified, recorded and disclosed in the financial
     statements. The internal auditor is the appropriate resource for
     assessing what management has implemented with regard to related
     party information by evaluating relevant internal controls, and
     informing the management about the deficiencies detected with
     suggestions for improvement.






Definitions
3.   (i)       Related Party
               Parties are considered to be related, if at any time during
               the reporting period, one party has the ability to control the
               other party or exercise significant influence over the other
               party in making financial and/ or operating decisions.
     (ii)      Control
               (a)       Ownership, directly or indirectly, of more than one
                         half of the voting power of an enterprise, or
               (b)       Control of the composition of the board of directors
                         in the case of a company or of the composition of
                         the corresponding governing body in case of any
                         other enterprise, or
                                                              Related Parties

              (c)      A substantial interest in voting power and the
                       power to direct, by statute or agreement, the
                       financial and/ or operating policies of the
                       enterprise.
     (iii)    Significant Influence
              Participation in the financial and/ or operating policy
              decisions of an enterprise, but not control of those policies.
     (iv)     Relative
              In relation to an individual, means the spouse, son,
              daughter, brother, sister, father and mother who may be
              expected to influence, or be influenced by, that individual in
              his/ her dealings with the reporting enterprise.
     For the purpose of this Standard, all other terms used herein would
     have the same definition/ meaning as used in Accounting Standard
     (AS) 18, " Related Party Disclosures " issued by the Institute of
     Chartered Accountants of India.
4.   An entity is considered to control the composition of:
      (i)     the board of directors of a company, if it has the power,
              without the consent or concurrence of any other person, to
              appoint or remove all or a majority of directors of that
              company. An enterprise is deemed to have the power to
              appoint a director if any of the following conditions is
              satisfied:
              (a)      a person cannot be appointed as director without
                       the exercise in his favour by that enterprise of such
                       a power as aforesaid; or
              (b)      a person's appointment as director follows
                       necessarily from his appointment to a position held
                       by him in that enterprise; or
              (c)      the director is nominated by that enterprise, in case
                       that enterprise is a company, the director is
                       nominated by that company/ subsidiary thereof.



                                    3
      (ii)    the governing body of an enterprise that is not a company, if
              it has the power, without the consent or the concurrence of
              any other person, to appoint or remove all or a majority of
              members of the governing body of that other enterprise. An
              enterprise is deemed to have the power to appoint a
              member if any of the following conditions is satisfied:
              (a)      a person cannot be appointed as member of the
                       governing body without the exercise in his favour
                       by that other enterprise of such a power as
                       aforesaid; or
              (b)      a person's appointment as member of the
                       governing body follows necessarily from his
                       appointment to a position held by him in that other
                       enterprise; or
              (c)      the member of the governing body is nominated by
                       that other enterprise.

Related Party Transactions
5.   A related party transaction is a transfer of resources, services or
     obligations between an entity and a related party, regardless of
     whether or not a price is charged. Transactions that because of their
     nature may be indicative of the existence of related parties include:
      (a)     Borrowing or lending on an interest-free basis or at a rate of
              interest significantly above or below market rates prevailing
              at the time of the transaction.
      (b)     Buying/ selling transactions at a price that differs
              significantly from its appraised value.
      (c)     Exchanging property for similar property in a non-monetary
              transaction.
      (d)     Making loans with no scheduled terms of repayment.
      (e)     Granting of a guarantee without adequate compensation.
6.    Related party transactions may not be conducted under normal
      market terms and conditions at all times. There may be possibility
                                                              Related Parties

      that transactions with related party may have been motivated solely,
      or in large measure, by conditions similar to the following:
      (a)      Lack of sufficient working capital or credit to continue the
               business;
      (b)      An urgent desire for a continued favorable earnings record
               in the hope of supporting the price of the company's share;
      (c)      An overly optimistic earnings forecast;
      (d)      Depending on a single or relatively few products, services,
               customers, suppliers or transactions for the continuing
               success of the venture;
      (e)      Excess capacity;
      (f)      Significant litigation, especially,       litigation   between
               stakeholders and management;
      (g)      A declining industry characterized by a large number of
               business failures;
      (h)      Significant technology obsolescence.

Internal Audit Procedures
7.    The internal auditor shall perform the internal audit procedures and
      related activities to obtain information relevant to evaluating internal
      controls associated with related party relationships and transactions.
      The internal auditor shall gather the following information pertaining
      to related party relationships and transactions:
      (a)      The identity of the entity's related parties including changes
               from the prior period;
      (b)      The nature of the relationships between the entity and these
               related parties; and
      (c)      Whether the entity has entered into any transaction with
               these related parties during the period and, if so, the nature
               and extent, and the purpose of the transaction.




                                    5
8.   The following may be considered by the internal auditor while
     understanding the entity's related party relationships and
     transactions:
     (a)     The nature and extent of the entity's relationships and
             transactions with related parties.
     (b)     An emphasis on the importance of maintaining due
             professional care throughout the internal audit regarding the
             potential for material misstatement associated with related
             party relationships and transactions.
     (c)     The circumstances or conditions of the entity that they
             indicate the existence of related party relationships or
             transactions that management has not identified or
             disclosed to the internal auditor (for example, a complex
             organizational structure, use of special-purpose entities for
             off-balance sheet transactions, or an inadequate
             information system).
     (d)     The records or documents that may indicate the existence
             of related party relationships or transactions.
     (e)     The importance that management and those charged with
             governance attach to the identification, appropriate
             accounting for, and disclosure of related party relationships
             and transactions, and the related risk of management
             override of relevant controls.
9.   The internal auditor shall inspect the following for indications of the
     existence of related party relationships or transactions that
     management has not previously identified or disclosed:
     (a)     Bank and legal confirmations obtained as part of the
             internal auditor's procedures;
     (b)     Minutes of the meetings of the shareholders and of those
             charged with governance; and
     (c)     Such other records or documents as the internal auditor
             considers necessary in the circumstances of the entity, for
             example:
                      Entity income tax returns.
                                                              Related Parties

                        Information supplied by the entity to statutory and
                        regulatory authorities.
                        Shareholder registers to identify the entity's
                        principal shareholders.
                        Statements of conflicts of interest from
                        management and those charged with governance.
                        Records of the entity's investments and those of its
                        pension plans.
                        Contracts and agreements with key management
                        or those charged with governance.
                        Significant contracts and agreements not in the
                        entity's ordinary course of business.
                        Specific invoices and correspondence from the
                        entity's professional advisors.
                        Life insurance policies acquired by the entity.
                        Significant contracts re-negotiated by the entity
                        during the period.
                        Documents associated with the entity's filings with
                        a securities regulator (e.g., prospectuses).
      If the internal auditor identifies significant transactions outside the
      entity`s normal course of business then the internal auditor shall
      obtain information about the nature of these transactions and
      whether the related parties are involved.
10.   In smaller entities, the identification of related party transactions can
      often be difficult. If the entity uses a standard software package to
      record transactions, consider obtaining an electronic copy of the
      transactions and importing them into an electronic spreadsheet. By
      using the sort feature and configuring the selection criteria, it may be
      possible to obtain information about customers/ suppliers with only a
      few, but large, transactions, or those with significant transactions of
      a size or nature that is unusual.









                                     7
11.   In responding to the identified risks of material misstatement
      associated with related party relationships and transactions, the
      internal auditor would consider the following:
      (a)     Determine whether underlying circumstances confirm their
              existence;
      (b)     Promptly communicate the information to the engagement
              team;
      (c)     Request management to identify all the transactions with
              the related party;
      (d)     If related party was not previously identified, consider:
                       failure of any related party identification controls,
                       and
                       fraud (non- disclosure by management appears
                       intentional);
      (e)     Reconsider the risk that the other undisclosed related
              parties or significant related party transactions may exist,
              and perform additional internal audit procedures as
              necessary; and
      (f)     Perform appropriate substantive internal audit procedures.
12.   With regard to significant related party transactions outside
      normal course of business, the internal auditor should inspect
      underlying contracts or agreements, if any, and evaluate
      whether:
      (a)     Rationale suggests possible fraudulent financial
              reporting or concealment of misappropriated assets;
      (b)     Terms are consistent with management`s explanations;
              and
      (c)     Transactions are accounted for and disclosed in
              accordance with the generally accepted accounting
              principles;
      (d)     Ensure transactions have been appropriately authorized
              and approved.
                                                           Related Parties

13.   The internal auditor should obtain sufficient appropriate audit
      evidence about management's assertion that a related party
      transaction was conducted on terms equivalent to those
      prevailing in an arm's length transaction. Evaluating
      management's support for this assertion may involve one or more of
      the following:
      (a)      Considering the appropriateness of management's process
               for supporting the assertion.
      (b)      Verifying the source of the internal or external data
               supporting the assertion, and testing the data to determine
               their accuracy, completeness and relevance.
      (c)      Evaluating the reasonableness of any             significant
               assumptions on which the assertion is based.
14.   The internal auditor should consider the following matters:
      (a)      Document the names of the identified related parties
               and the nature of the related party relationships; and
      (b)      Communicate with those charged with governance, or
               relevant committee thereof, such as, audit committee,
               any significant matters arising during the internal audit
               in connection with related parties.
15.   The internal auditor should consider the impact on the internal
      audit report if it is not possible to obtain sufficient appropriate
      audit evidence concerning related parties and transactions, and
      should suitably disclose it in the internal audit report, based on
      it's materiality .

Effective Date
16.   This Standard on Internal Audit will apply to all internal audits
      commencing on or after ______. Earlier application of the SIA is
      encouraged.




                                   9
                                                       Notes


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