Related Entity Transactions
It is common for an entity to have transactions with related entities-some of which are fully owned, some of which share common ownership, but are not otherwise related, and others where ownership is small but there is control.
Required:
a. Define related entity transactions and describe the appropriate accounting for
related entity transactions. In your answer consider the following:
• Parent-subsidiary transactions
• Affiliated entity transactions-owned by same owner (not a corporation)
• Joint venture transactions
• Special purpose entity transactions
• Entity transactions with CEO (other than payroll)
b. There are two basic approaches to auditing related entity transactions. Describe
the two approaches and evaluate the strengths and weaknesses of each approach.
This solution talks about related entity transactions. It also explores the approaches that the auditor should take with respect to related entity transactions.
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