How do you audit related party balances?
A core Audit & Assurance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
ISA 550: (1) Confirm intercompany balances with the related party. (2) Test the terms – are they arm’s length? Compare to third-party transactions. (3) Review for proper disclosure under IAS 24. (4) Evaluate business purpose. (5) For loans: test terms, interest rates, repayment. (6) Be alert for undisclosed related parties.
WHAT INTERVIEWERS LISTEN FOR
- ✓Confirm intercompany balances
- ✓Test arm's length terms
- ✓Review IAS 24 disclosure
- ✓Evaluate business purpose
- ✓Test loan terms and rates
COMMON MISTAKES
- ✗Assuming all related party transactions are valid
- ✗Ignoring undisclosed related parties
- ✗Failing to compare with third-party transactions
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