In your audit of Canyon Outdoor Provision Company's financial statements, the following transactions came to your attention:
Question:
1. Canyon Outdoor's operating lease for its main store is with York Properties, which is a real estate investment firm owned by Travis Smedes. Mr. Smedes is a member of Canyon Outdoor's board of directors.
2. One of Canyon Outdoor's main suppliers for kayaks is Hessel Boating Company.
Canyon Outdoor has purchased kayaks and canoes from Hessel for the last 25 years, under a long-term contract arrangement.
3. Short-term financing lines of credit are provided by Cameron Bank and Trust.
Suzanne Strayhorn is the lending officer assigned to the Canyon Outdoor account.
Suzanne is the wife of the largest investor of Canyon Outdoor.
4. Hillsborough Travel partners with Canyon Outdoor to provide hiking and rafting adventure vacations. The owner of Hillsborough Travel lives in the same neighbor-hood as the CEO of Canyon Outdoor. They are acquaintances, but not close friends.
5. The board of directors consists of several individuals who own stock in Canyon Outdoor. At a recent board meeting, the board approved its annual dividend payable to shareholders effective June 1.
Required
a. Define what constitutes a "related party."
b. Which of the preceding transactions would most likely be considered to be a related party transaction?
c. What financial statement implications, if any, would each of the above transactions have for Canyon Outdoor?
d. What procedures might auditors consider to help them identify potential related party transactions for clients like Canyon Outdoor?
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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a A related party transaction occurs when one party to a transaction has the ability to impose contract terms that would not have occurred if the parties had been unrelated Accounting standards conclu...View the full answer
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Related Book For 
Auditing and Assurance services an integrated approach
ISBN: 978-0132575959
14th Edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley
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