Related party transactions and audit risk

Related Party Transactions (RPTs) are perceived as genuine transactions, which fulfill the economic needs of a company. However, the controlling shareholders may use RPTs as a tool for transferring the firm’s resources for their private benefit. The dual effect of RPTs, i.e., transaction efficiency...

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Autores principales:	Abdul Rasheed P. C, Iqbal Thonse Hawaldar, Mallikarjunappa T
Formato:	article
Lenguaje:	EN
Publicado:	Taylor & Francis Group 2021
Materias:	related party transactions audit risk conflicts of interests transaction efficiency firm performance ✚-arm’s length price india Business HF5001-6182 Management. Industrial management HD28-70
Acceso en línea:	https://doaj.org/article/07946a945b9d4daca9125f82fcd3602b
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spelling	oai:doaj.org-article:07946a945b9d4daca9125f82fcd3602b2021-12-02T16:37:50ZRelated party transactions and audit risk2331-197510.1080/23311975.2021.1888669https://doaj.org/article/07946a945b9d4daca9125f82fcd3602b2021-01-01T00:00:00Zhttp://dx.doi.org/10.1080/23311975.2021.1888669https://doaj.org/toc/2331-1975Related Party Transactions (RPTs) are perceived as genuine transactions, which fulfill the economic needs of a company. However, the controlling shareholders may use RPTs as a tool for transferring the firm’s resources for their private benefit. The dual effect of RPTs, i.e., transaction efficiency and conflict of interest between the controlling shareholders and minority shareholders, increase audit risk and as a result, increases the audit fee. The Companies Act, 2013, and Clause 49 of the SEBI listing agreement mandate arm’s length principle of pricing of RPTs. However, there are situations in which the regulations are silent about the method of pricing, and this increases the risk of auditors for auditing RPTs. This study intends to examine the relationship between RPTs and audit risk in India, based on a sample of 1,182 firms covering a period from 31 March 2011 to 31 March 2018. Panel data methodology has been applied for empirical analysis and the results show that higher audit fee is an indication of resource transferring RPTs. The results prove that instead of reducing the complexity associated with RPTs, the new RPTs regulations increase audit fee as a result of the increases in audit risk.Abdul Rasheed P. CIqbal Thonse HawaldarMallikarjunappa TTaylor & Francis Grouparticlerelated party transactionsaudit riskconflicts of intereststransaction efficiencyfirm performance✚-arm’s length priceindiaBusinessHF5001-6182Management. Industrial managementHD28-70ENCogent Business & Management, Vol 8, Iss 1 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	related party transactions audit risk conflicts of interests transaction efficiency firm performance ✚-arm’s length price india Business HF5001-6182 Management. Industrial management HD28-70
spellingShingle	related party transactions audit risk conflicts of interests transaction efficiency firm performance ✚-arm’s length price india Business HF5001-6182 Management. Industrial management HD28-70 Abdul Rasheed P. C Iqbal Thonse Hawaldar Mallikarjunappa T Related party transactions and audit risk
description	Related Party Transactions (RPTs) are perceived as genuine transactions, which fulfill the economic needs of a company. However, the controlling shareholders may use RPTs as a tool for transferring the firm’s resources for their private benefit. The dual effect of RPTs, i.e., transaction efficiency and conflict of interest between the controlling shareholders and minority shareholders, increase audit risk and as a result, increases the audit fee. The Companies Act, 2013, and Clause 49 of the SEBI listing agreement mandate arm’s length principle of pricing of RPTs. However, there are situations in which the regulations are silent about the method of pricing, and this increases the risk of auditors for auditing RPTs. This study intends to examine the relationship between RPTs and audit risk in India, based on a sample of 1,182 firms covering a period from 31 March 2011 to 31 March 2018. Panel data methodology has been applied for empirical analysis and the results show that higher audit fee is an indication of resource transferring RPTs. The results prove that instead of reducing the complexity associated with RPTs, the new RPTs regulations increase audit fee as a result of the increases in audit risk.
format	article
author	Abdul Rasheed P. C Iqbal Thonse Hawaldar Mallikarjunappa T
author_facet	Abdul Rasheed P. C Iqbal Thonse Hawaldar Mallikarjunappa T
author_sort	Abdul Rasheed P. C
title	Related party transactions and audit risk
title_short	Related party transactions and audit risk
title_full	Related party transactions and audit risk
title_fullStr	Related party transactions and audit risk
title_full_unstemmed	Related party transactions and audit risk
title_sort	related party transactions and audit risk
publisher	Taylor & Francis Group
publishDate	2021
url	https://doaj.org/article/07946a945b9d4daca9125f82fcd3602b
work_keys_str_mv	AT abdulrasheedpc relatedpartytransactionsandauditrisk AT iqbalthonsehawaldar relatedpartytransactionsandauditrisk AT mallikarjunappat relatedpartytransactionsandauditrisk
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Related party transactions and audit risk

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