60.1K

Verified Solution

Link Copied!

In your audit of Canyon Outdoor Provision Companys financial statements, the following transactions came to your attention:

1. Canyon Outdoors operating lease for its main store is with MTS Properties, which is a real estate investment firm owned by Andrei Mikhailov. Mr. Mikhailov is a member of Canyon Outdoors board of directors.
2. One of Canyon Outdoors 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 neighborhood 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

1. Define what constitutes a related party.
2. Which of the preceding transactions would most likely be considered a related party transaction?
3. What financial statement implications, if any, would each of the above transactions have for Canyon Outdoor?
4. What procedures might auditors consider to help them identify potential related party transactions for clients like Canyon Outdoor?

Answer & Explanation Solved by verified expert

See Answer