United States

Auditing related parties under PCAOB AS 18: What you should expect


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The Public Company Accounting Oversight Board (PCAOB) has issued Auditing Standard (AS) No. 18, Related Parties, and amendments to certain PCAOB auditing standards, which are discussed in the summary, Auditing Related Parties Under PCAOB AS 18. As a result of these changes, which are applicable to audits for years beginning on or after December 15, 2014, brokers and dealers and futures commission merchants should expect:

  • Requests from auditors to identify all related parties and relationships and transactions with related parties
  • Increased testing of transactions with related parties, including inquiries regarding the business purpose of such transactions, at the level at which such transactions are aggregated and reported within financial statement disclosures or determined to be a significant risk
  • Scrutiny of disclosures that state transactions with related parties were completed at arms-length
  • Increased communications to those charged with governance regarding related parties or relationships or transactions with related parties, such as:
    • Items that were not authorized or approved in accordance with the company’s established policies or procedures or were otherwise excepted from such policies or procedures
    • Items that were previously undisclosed by management, exceptions to policies, transactions that appear to lack a business purpose
    • Evidence that supports or contradicts a disclosure that a related-party transaction was conducted on terms equivalent to those prevailing in an arms-length transaction 
  • Inquiries of management and others within the organization regarding whether the company has entered into any significant unusual transactions (transactions that are outside the normal course of business for the company or that otherwise appear to be unusual due to their timing, size or nature)
  • Requests from auditors to identify the nature, terms and business purpose of any significant unusual transactions identified and whether such transactions involved related parties
  • Requests to read employment and compensation contracts of executive officers
  • Inquiries of the compensation committee and compensation consultants regarding the structure of the company’s executive officer compensation
  • Inquiries to obtain an understanding of policies and procedures regarding the authorization and approval of executive officer expense reimbursements
  • Requests to inspect documentation for unusual executive officer expense reimbursements



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