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Why auditors give significance to business transactions with related parties ? How are these transactions different from normal transactions ?

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تاريخ النشر: 2014/09/19
Anayatullah Tahir
من قبل Anayatullah Tahir , Finance Manager , Etqan Projects

I agree with Rehan Qureshi

Rehan Qureshi
من قبل Rehan Qureshi , Financial Consultant , Self Employeed

DEFINITION OF 'RELATED-PARTY TRANSACTION'

A business deal or arrangement between two parties who are joined by a special relationship prior to the deal. For example, a business transaction between a major shareholder and the corporation, such as a contract for the shareholder's company to perform renovations to the corporation's offices, would be deemed a related-party transaction.

American public companies are required to disclose all transactions with related parties such as executives, associates and their family members in their annual10-K report. While the great majority of related-party transactions are perfectly normal, the special relationship inherent between the involved parties creates potential conflicts of interest which can result in actions which benefit the people involved as opposed to the shareholders. For example, in the infamous Enron scandal, related-party transactions with "special-purpose entities" were used to help the company misreport their accounting numbers.

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