In your audit of Canyon Outdoor Provision Company’s financialstatements, the following transactions came to your attention:1. Canyon Outdoor’s operating lease for its main store is with York Properties, whichis a real estate investment firm owned by Travis Smedes. Mr. Smedes is a member ofCanyon 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 yearsunder 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 raftingadventure vacations. The owner of Hillsborough Travel lives in the same neighborhood as the CEO of Canyon Outdoor. They are acquaintances, but not closefriends.5. The board of directors consists of several individuals who own stock in CanyonOutdoor. At a recent board meeting, the board approved its annual dividendpayable to shareholders effective June 1.a. Define what constitutes a “related party.”b. Which of the preceding transactions would most likely be considered to be a relatedparty transaction?c. What financial statement implications, if any, would each of the above transactionshave for Canyon Outdoor?d. What procedures might auditors consider to help them identify potential relatedparty transactions for clients like Canyon Outdoor?
In your audit of Canyon Outdoor Provision Company’s financial
statements, the following transactions came to your attention:
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 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.
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?
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