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d party transactions. Indeed, related party transactions are a regular feature of many entities that are owned and managed by an individual or by a family. Further, the owner-manager may not fully understand the definition of a related party, especially where relevant accounting standards deem certain relationships to be related and others not. The provision of management representations in respect of the completeness of disclosure may entail some explanation by the auditor of the technical definition of a related party.
.86 The auditor of a small entity ordinarily performs substantive procedures on the identification of related parties and related party transactions. However, if the auditor assesses the risk of undisclosed related party transactions as low, such substantive procedures need not be extensive. The auditor often acts as the auditor of other entities related to the small entity, which may assist in identifying related parties.
.87 The auditor’s in-depth knowledge of the small entity may be of assistance in the identification of related parties, which in many instances, will be with entities controlled by the owner-manager. This knowledge can also help the auditor assess whether related party transactions might have taken place without recognition in the entity’s accounting records.
AUS 706: Subsequent Events
Subsequent Events Between the Period-end and the Date of the Auditor’s Report
.88 It is not common for small entities to be required to report shortly after their period-end. It is often the case that more time elapses between the period-end and the approval or signature of the financial report by the owner-manager in the case of small entities, than in the case of large entities. The period to be covered by the auditor’s subsequent events procedures is therefore often longer in the audit of a small entity, allowing more opportunity for the occurrence of subsequent events that can affect the financial report. AUS 706 requires the auditor to perform procedures to cover the entire period from the period-end up to the date of the auditor’s report.
.89 The subsequent events procedures that the auditor of a small entity performs will depend on the information that is available and, in particular, the extent to which the accounting records have been written up since the period-end. When the accounting records are not up-to-date and minutes of meetings of the directors have not been prepared, relevant procedures can take the form of inquiry of the owner-manager, recording the owner-manager’s responses and inspection of bank statements. Paragraph .05 of AUS 706 gives examples of some of the matters that it may be appropriate for the auditor to consider in the course of these inquiries.
.90 The auditor may, depending on the circumstances, consider that the letter of representation should cover subsequent events. The letter of representation is ordinarily dated on the same day as the auditor’s report, thus covering the entire period since the period-end.
.91 Guidance on the auditor’s procedures relating to subsequent events (if any) in the period between the approval of the financial report and the date of the auditor’s report is given in the guidance provided in this AGS on AUS 702, “The Audit Report on a General Purpose Financial Report.”
Subsequent Events Between the Date of the Auditor’s Report and the Financial Report Being Issued
.92 Where, as in many small entities, the meeting at which the fi