The New York State Society of CPAs said it supports proposed changes from the Public Company Accounting Oversight Board in auditing standards for related-party transactions, although it stopped short of fully supporting the PCAOB’s proposals for auditing significant unusual transactions.
In a comment letter sent last month to the PCAOB in response to PCAOB Release No. 2012-001, the NYSSCPA said it agrees with the decision to adopt a “framework neutral” approach and to allow the relevant financial reporting framework to provide the definition of a related party. The NYSSCPA’s Auditing Standards, International Accounting and Auditing and SEC Practice committees deliberated on the PCAOB release and prepared the comment letter.
“The absence of those guidelines has caused a lot of problems with different types of financial arrangements,” said NYSSPCA Auditing Standards Committee member J. Roger Donohue, CPA, one of the principal drafters of the comment letter.
In addition to its proposals for improving audits of related-party transactions, the PCAOB is also proposing amendments to enhance the auditor’s identification and evaluation of a company’s significant unusual transactions. The NYSSCPA said in its comment letter that it recognizes the importance of emphasizing the identification of significant unusual transactions, which allow the auditor to identify and assess the risks with which a material misstatement and the appropriate accounting recognition and disclosure issues can be dealt.
But despite the improvements in these auditing standards, the NYSSCPA said it is concerned that the standard implies the auditor will always be able to identify all such transactions, which would be technically impossible.
In its letter, the NYSSCPA instead suggested the establishment of additional guidance in the ASU explaining that in certain situations, controls over related-party relationships and transactions might be lacking or might not exist at all.
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