Pub. 9 2018 Issue 1

Spring 2018 23 West Virginia Banker As a manager on YHB’s Community Banking team, Rachel specializes in a variety of services including external audits, internal audits, and consulting services for community banks. She is actively involved in the creation and leadership of firm-wide and community bank-specific training. Rachel can be reached at 540-662-3417 or rachel.klein@yhbcpa.com than a tenant or employee) sharing the household of such director, executive officer or nominee for director.” Disclosure Requirements Disclosure of material transactions with related parties is re- quired in financial statements. Transactions eliminated during the process of preparing consolidated or combined financial statements are not required to be disclosed. ASC 850-10 details the specific disclosure requirements: • “Disclosures shall include: • The nature of the relationship(s) involved • A description of the transactions, including transac- tions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements • The dollar amounts of transactions for each of the pe- riods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period • Amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement • The information required by paragraph 740-10-50-17 (Entities with Separately Issued Financial Statements that are Members of a Consolidated Tax Return)” If your disclosure represents that the transactions were conducted at arm’s length and on terms equivalent for arm’s length transactions, these representations must be able to be substantiated. Example Transactions While not an all-inclusive list, example related party transac- tions can include: • Deposit relationships • Loan relationships • Lease arrangements • Cost sharing agreements for services performed • Contracted services • Debt (disclosing entity is indebted to related party) • Other Real Estate Owned transactions (specific to finan- cial institutions) Audit Implications Why is your auditor asking all of these questions regarding related parties and your entity’s process? There are two auditing standards that require your auditor to evaluate the identification and disclosure of related party relationships and transactions as part of the audit procedures. For audits con- ducted under Public Company Accounting Oversight Board Standards, which includes all SEC registrant audits, Auditing Standard 2410, Related Parties, applies (previously AS 18). All other audits are subject to the American Institute of Certified Public Accountants Auditing Standard Section 550 (AU-C 550, Related Parties). Both standards require the auditor to perform procedures to test the accuracy and completeness of related party transactions. Often the auditor will obtain an understanding of your entity’s related party identifica- tion, transaction authorization and approval and tracking processes, perform inquiries, review Board of Director and Committee minutes for indications of omitted transactions or relationships and test the accuracy of the related party listing to underlying support. Board of Directors and Management Responsibilities Entities should implement a related party policy or written procedures describing the entity’s related party transaction approval/authorization process, related party relationship and transaction identification process, tracking and periodic monitoring process, and details regarding what relationships are deemed to constitute related parties for financial report- ing purposes. Most entities have put into practice the use of a related interest form or questionnaire to document related party relationships and transactions. The form is completed on an annual basis, at a minimum, by the related parties. The forms are available for revision and updates as necessary throughout the year. Then, at year-end, a designated individ- ual performs a review of the forms for completeness and the forms are utilized in the financial reporting disclosure process. At YHB we understand the complexities that come with running a community bank. That’s why we help make the complex simple, so you can grow confidently. If you have any questions, please do not hesitate to reach out to us at YHB- cpa.com .  There are two auditing standards that require your auditor to evaluate the identification and disclosure of related party relationships and transactions as part of the audit procedures.