came to your attention:
1. Canyon Outdoor’s 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 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 ad-
venture 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
Chapter 8 / AUDIT PLANNING AND MATERIALITY 259
a. Define what constitutes a “related party.”
b. Which of the preceding transactions would most likely be considered 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?
