Why Are Related Party Transactions a Risk Area for Auditors

question 11

Multiple Choice

Why are related party transactions a risk area for auditors? They:

• A)have minimal disclosure requirements.
• B)have a higher than average risk of irregularities.
• C)have a direct impact on profit.
• D)are difficult to assess.

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Definitions:

Variable Overhead

This consists of expenses that vary with production output, including costs not directly tied to manufacturing but essential for operation.

Labour Efficiency Variance

The difference between the actual labor hours used and the standard labor hours set for the production level achieved.

Incremental Cost Approach

A decision-making process focusing on the costs that change with the level of production or the introduction of a new process.

Net Present Value

The difference between the present value of an investment project’s cash inflows and the present value of its cash outflows.