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PCAOB Calls for More Scrutiny of Related-Party Transactions

Tammy Whitehouse | March 6, 2012

Auditors are getting new orders from regulators to sniff out business deals with insiders and to probe unusual transactions, including executive compensation deals, looking for terms and conditions that suggest something could be amiss.

The Public Company Accounting Oversight Board is proposing a new auditing standard that would give auditors more pointed direction to consider the risk of fraud when companies do business with “related parties,” such as subsidiaries or other connected entities, shareholders, executive officers, and close family members. The proposal also directs auditors to look more carefully at significant unusual transactions (those that appear to be outside the normal course of business for the company) as well as executive compensation agreements for any hints that might suggest the potential for manipulation or fraud.

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