Related party transactions are a significant risk at a family-owned listed company. How would you audit them?

What the interviewer wants to hear

• Obtains and tests completeness of the related party list
• Identifies undisclosed related parties through records and declarations
• Checks approvals under the Companies Act and listing rules
• Evaluates arm’s length terms and business rationale
• Checks disclosures under Ind AS 24 and communicates with the audit committee

Model answer

I would treat it as a significant risk and start by getting management’s list of related parties and transactions, then test its completeness: directors’ declarations of interest, MCA records of directors’ other companies, shareholding patterns, board and audit committee minutes, bank confirmations and large contracts. I would use data analytics to match vendor and customer master data, like addresses, PANs and bank accounts, against related party details. For each significant transaction, I would check approval by the audit committee and, where needed, the board or shareholders under Section 188 and the listing regulations. I would assess the business rationale and whether terms are at arm’s length, comparing with prices for unrelated parties or market data. Transactions outside the normal course of business get extra attention. Finally, I would check Ind AS 24 disclosures and communicate significant matters to the audit committee, considering any impact on the opinion.

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