Earlier today, the Public Company Accounting Oversight Board (better known as the PCAOB) released a statement stating that they plan to issue for a public comment on proposed auditing standards that are in relation to related-party transactions. The article continues to describe what would be included and what would be looked at if this standard comes to fruition.
One comment in the article really made me smerk:
“The board is considering these changes because related-party
transactions and significant unusual transactions have played a
recurring role in financial failures..."
This comment was stated by the PCAOB Chairman, James R. Doty. Now I wonder how he came to this conclusion? Enron and Arthur Anderson ring a bell?
I think this standard is extremely over due. About ten years over due. This standard should have come hand in hand with the Sarbanes Oxley Act in 2002. Both this new standard and SOX are a product of Enron, and the governments response to a glaring problem that they did not see until it imploded in their face.
This standard is going to " improv[e] the auditor’s identification and evaluation of significant
unusual transactions [that] might assist the auditor in identifying related
parties or relationships or transactions with related parties previously
undisclosed to the auditor"
It gives the auditor more rights to become suspicious of any transaction they think needs more investigation. Of course companies are going to try and hide related-party transactions, but this gives the auditor more confidence to further investigate suspicious transactions.
Although many steps have been taken to find these transactions ever since the time of Enron, the PCAOB seems as if they were just catching up. It would even be satisfactory if this standard was in the step of being finalized, but it is only just at the stage of public comment. This means that it will give significant time for the public to comment on this standard, then they must take in and asses the comments, make further changes, then asses these changes again before finalizing. It will take time before this standard is put into effect but I believe that it will benefit the public in the long run.
