This time, I will share with you a relatively less discussed topic in accounting - Related transactions
Related transactions often seem unremarkable but it is just as important as other information. First of all, to understand what related transactions are, you must first understand what related people are. We can think about it like the "close contacts" of the company, including the boss him/herself, his/her family members, and even other companies he holds. When the company has a transaction with a related person, it will also be disclosed independently in the company's financial report. In our accounting process, these related people' transactions (if any), we generally check whether the transaction amount and even the terms are fair. But the main point is, "what is fairness"- It looks subjective but however it is not.
From an accountant's point of view, assuming that when we conduct a transaction with an unknown third party, whether or not the amount or terms of the transaction are similar to those of the related party. There will be a situation that for the same set meal in a restaurant, purchasing from A and B parties costs $100, but purchasing from Party C costs $50.
Of course in reality, there are many factors that explain the situation, such as having friendly business relationship with the restaurant, or there is price promotion, etc. It is very difficult to differentiate whether there are related transactions. There are owners (especially in the catering industry) who are always worried that theit employees will be colluded with some familiar suppliers to misappropriate company funds.
Next time I will talk about some actual cases, and how do we find out from the accounting point of view that the employees of a client company have fraudulently misappropriate company funds.
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