Related party transactions, significant unusual transactions and transactions with a company’s executive officers are three critical areas of risk that have been contributing factors in a number of financial reporting frauds over the last several decades. The PCAOB has previously concluded that its existing requirements to audit these areas are not sufficient and are not sufficiently risk-based.
In response, the PCAOB issued, and the SEC has approved Auditing Standard (“AS”) No. 18, Related Parties, as well as amendments to existing standards on auditing significant unusual transactions and transactions with a company’s executives. These changes may result in additional documentation and scrutiny of these types of transactions by audit firms as they comply with the standard for audits performed under PCAOB standards, including those for publicly traded companies and broker-dealers.
We’ve outlined the details of AS No. 18 in our latest MHM Messenger: Renewed Audit Focus – Related Parties and Unusual Transactions.