Which of the following is a step in testing related parties?

Requesting a list of related parties from management is a foundational step in testing related parties. This is because the identification of related parties is crucial in audit procedures; auditors need to understand which entities or individuals are considered related parties to the client. The list provided by management serves as a primary source of information that allows auditors to plan additional tests and procedures concerning transactions and balances with those related parties.

In auditing, understanding the nuances of related party relationships helps ensure that all transactions are disclosed appropriately and that any risks of fraud or misstatement can be adequately addressed. Any related party transactions that are not disclosed can lead to significant issues in financial reporting and affect the fairness of the financial statements.

The other options, while relevant to other audit procedures, do not specifically pertain to the initial and critical step of identifying related parties within the context of testing related parties. For instance, inspecting inventory for physical damage is more applicable to verifying the existence and condition of assets, rather than identifying related parties. Reperforming payroll calculations relates to verifying the accuracy of payroll expenses, and comparing loan balances at year-end pertains to financial liabilities rather than related party identification.