Related Parties. D'orsay Dore, SA is being audited by Clement & Grandcourt, Expert Comptables. During the course of the audit Clement & Grandcourt discover D'orsay Dore sold inventory to Parisienne de Fedora for 90-day terms, three times the typical payment period required, and the payments went directly to the president of D'orsay Dore, not to the accounting department which was the usual practice. Industriel Cuir supplies over 40 percent of the raw materials D'orsay purchases whereas no other supplier provides more than 5 percent of raw materials. D'orsay management says that they do so much business with Industriel Cuir because they provide D'orsay management assistance at no charge. D'orsay's business is greatest in the last month before the fiscal year end when they book 30 percent of their sales, some years in the last week before closing. D'orsay Dore has provided Clement & Grandcourt with a management representation letter that states that there are no related party transactions.
Required:
A. Should Clement & Grandcourt take D'orsay Dore's word when they say there are no related parties? Why?
B. List the circumstances at D'orsay Dore that may indicate the existence of unidentified related parties.
C. What audit procedures should Clement & Grandcourt perform to investigate the possibility of related parties?