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| Bangladesh Standard on Audit(BSA-550) |
What is the Bangladesh standard on Audit-BSA-550? Describes in details:
Bangladesh Standard on Auditing (BSA) 550, titled "Related Parties", provides guidance to auditors on how to identify, evaluate, and disclose transactions with related parties during an audit. Related party transactions can pose risks of misstatement, especially if they are not disclosed or if there is a lack of transparency in such transactions.
Here are the key points of BSA 550:
1.Objective:
The main objective of BSA 550 is to ensure that auditors identify related party relationships and transactions, evaluate their impact on the financial statements, and ensure that related party transactions are disclosed appropriately in accordance with the applicable financial reporting framework.
2. Definition of Related Parties:
Related parties include entities or individuals that have control, significant influence, or common control over the reporting entity. This can include subsidiaries, associates, joint ventures, and individuals such as directors, key management personnel, and their close family members.
3. Identifying Related Party Relationships:
The auditor needs to gather information to identify related parties. This may involve reviewing corporate records, board meeting minutes, and discussions with management.
The auditor must be aware of transactions that may not be immediately obvious, as related party transactions often occur outside the normal course of business.
4. Related Party Transactions:
Auditors should review the terms of related party transactions to ensure they are conducted on an arm's length basis (i.e., under conditions that would apply if the transaction were between unrelated parties).
Special attention should be given to significant or unusual transactions with related parties, as they can involve risks such as fraud, misstatements, or conflicts of interest.
5.Audit Procedures:
Inquiry: The auditor must make inquiries of management, those charged with governance, and others to identify related parties and related party transactions.
6.Documentation Review:
The auditor reviews agreements, contracts, and transactions to ensure they are properly disclosed and accounted for in the financial statements.
Testing: The auditor tests the completeness and accuracy of the disclosures and examines whether transactions are conducted on appropriate terms.
7. Disclosure Requirements:
The financial statements must disclose related party relationships, transactions, and outstanding balances, including the nature of the relationship and the terms and conditions of the transactions.
The auditor must ensure that the disclosures comply with the relevant accounting standards and regulatory requirements.
8. Management’s Responsibility:
Management is responsible for identifying related parties, ensuring the proper recording of related party transactions, and disclosing them in the financial statements. The auditor evaluates whether management's processes for identifying and disclosing related party transactions are adequate.
9. Risks and Considerations:
Related party transactions can sometimes be used to hide fraud or misappropriate assets, so auditors need to be vigilant and apply professional skepticism.If the auditor identifies unreported or improperly disclosed related party transactions, they need to assess the impact on the financial statements and may need to discuss the matter with management and those charged with governance.
10. Documentation:
The auditor must document the procedures performed, the evidence obtained, and the conclusions regarding related party transactions and disclosures.
In summary, BSA 550 focuses on the auditor's responsibility to identify and assess related party transactions, ensuring that they are disclosed accurately and appropriately in the financial statements. The standard emphasizes the need for the auditor to be particularly attentive to the risks associated with related party transactions and to ensure transparency and compliance with disclosure requirements.