[The following paragraph was effective for audits of fiscal years beginning before December 15, 2014. See PCAOB Release No. 2014-002 for audits of fiscal years beginning on or after December 15, 2014, or return to the current version.]
In understanding the business rationale for the transactions, the auditor should consider:
- Whether the form of such transactions is overly complex (for example, involves multiple entities within a consolidated group or unrelated third parties).
- Whether management has discussed the nature of and accounting for such transactions with the audit committee or board of directors.
- Whether management is placing more emphasis on the need for a particular accounting treatment than on the underlying economics of the transaction.
- Whether transactions that involve unconsolidated related parties, including special purpose entities, have been properly reviewed and approved by the audit committee or board of directors.
- Whether the transactions involve previously unidentified related parties fn 25 or parties that do not have the substance or the financial strength to support the transaction without assistance from the entity under audit.