PCAOB (AS) No. 18, Related Parties Explained

The PCAOB recently issued Auditing Standard (AS) No. 18, Related Parties to strengthen auditor performance in the high-risk areas of significant unusual transactions and financial relationships, and transactions with executive officers. The change comes as the result of an internal review where the PCAOB felt the existing protocol did not contain sufficient procedures and was not properly risk-based. Auditors are now required to perform specific procedures to determine the nature of a company’s relationships and transactions with the related parties. How a company identifies these relationships and transactions, including authorization and approval, is now seen as a significant aspect of its internal control and must be documented by the auditor, along with other key controls. The new standard replaces AU Section 334, Related Parties, because it was felt the existing rule lacked specificity. Other changes also included amendments to AU Section 316, Consideration of Fraud in a Financial Statement Audit. To get the full details on these standard updates, visit the Journal of Accountancy.