[The following paragraph was effective for periods ended after September 30, 1983. It was amended, effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004.

Return to the current version.]


After identifying related party transactions, the auditor should apply the procedures he considers necessary to obtain satisfaction concerning the purpose, nature, and extent of these transactions and their effect on the financial statements. The procedures should be directed toward obtaining and evaluating sufficient competent evidential matter and should extend beyond inquiry of management. Procedures that should be considered include the following:

  1. Obtain an understanding of the business purpose of the transaction. fn 6
  2. Examine invoices, executed copies of agreements, contracts, and other pertinent documents, such as receiving reports and shipping documents.
  3. Determine whether the transaction has been approved by the board of directors or other appropriate officials.
  4. Test for reasonableness the compilation of amounts to be disclosed, or considered for disclosure, in the financial statements.
  5. Arrange for the audits of intercompany account balances to be performed as of concurrent dates, even if the fiscal years differ, and for the examination of specified, important, and representative related party transactions by the auditors for each of the parties, with appropriate exchange of relevant information.
  6. Inspect or confirm and obtain satisfaction concerning the transferability and value of collateral.