Case Study

You are the audit senior on the audit for the year ending 30 June 2020 of Gordon Ltd. Thomas James is a junior auditor in your team. Thomas reads the audit strategy and finds a paragraph requiring the team to consider related parties when conducting the audit. Although Thomas knows that the company must disclose information to comply with AASB 124, he does not understand why the audit strategy has referred to related parties as a 'special risk area and approaches you as his audit senior for explanation.

Required

Provide Thomas with an explanation as to why it is necessary to consider related parties as part of the audit planning process.