Your preliminary discussion with European Real Estate Management (EREM)Corporation indicated that the company was owned by three Swedish individuals who sold limited liability partnerships of shopping malls,office buildings,and large residential apartment buildings to European investors.Often,a single shopping mall was broken up into several limited liability partnerships to make the ownership pieces small enough to sell easily.
In some cases these partnership units were sold to European companies,who diversified and bought units in several buildings.Other units were purchased by individuals.If a property looked particularly promising,the owners of EREM occasionally purchased units or advised their wives and family members to purchase units.
Required:
Explain why it is important for the auditor to identify related party transactions.Why are related party transactions a high-risk area for the EREM audit?

Question

Quizplus · Accepted Answer

The Answer of Your preliminary discussion with European Real Estate Management (EREM)Corporation indicated that the company was owned by three Swedish individuals who sold limited liability partnerships of shopping malls,office buildings,and large residential apartment buildings to European investors.Often,a single shopping mall was broken up into several limited liability partnerships to make the ownership pieces small enough to sell easily.
In some cases these partnership units were sold to European companies,who diversified and bought units in several buildings.Other units were purchased by individuals.If a property looked particularly promising,the owners of EREM occasionally purchased units or advised their wives and family members to purchase units.
Required:
Explain why it is important for the auditor to identify related party transactions.Why are related party transactions a high-risk area for the EREM audit?

Your Preliminary Discussion with European Real Estate Management (EREM)Corporation Indicated