Discuss the below:
Since 2006, a large number of finance companies in New Zealand have collapsed. Many management and accounting practices impacted the collapse of the finance companies. These practices include the debt funded business model and loans to related parties.
Required:
1. Explain how the following practices impacted the collapses of many finance companies. Citing the appropriate International Standards on Auditing explain also how they in turn exposed the companies' financial reporting to the risks of material misstatement of financial statement:
(a) the debt funded business model
(b) loans to related parties
2 What are the auditor's responsibilities for the following in an audit of financial statements of finance companies? Where appropriate, cite the relevant International Standards on Auditing (NZ).
(a)debtors
(b)related party relationships and transactions