The American Institute of Certified Public Accountants (AICPA) has issued guidance on the timely subject of related parties and related-party transactions. The guidance was written with the counsel of the eight largest U.S. accounting firms: Andersen, BDO Seidman, Deloitte and Touche, Ernst & Young, Grant Thornton, KPMG, McGladrey & Pullen, and PriceWaterhouseCoopers.
AICPA urges caution in reporting and auditing related-party transactions for several reasons, most notably:
- Disclosure of material related-party transactions and certain control relationships is required by generally accepted accounting principles.
- Financial statements may be distorted or misleading without adequate disclosures in these areas.
- There have been instances of fraudulent financial reporting and misappropriation of assets that have been facilitated by the use of an undisclosed related party.
Chuck Landes, Director of Audit & Attest Standards for AICPA and editor of the guide, says he expects CPAs will find the toolkit useful in complying with accounting and auditing standards for related parties and related-party transactions - two normally arcane areas of reporting that have captured the attention of the business press in recent weeks. "Recent business events reflect the increasing use of complex business structures that include off-balance sheet entities," explains Landes.
Click here to download the electronic document.