The SEC has approved new PCAOB auditing standards relating to related party transactions, significant unusual transactions, and financial relationships and transactions between a company and its executives, including executive compensation. You can find the SEC’s release on the new standards here.
When the PCAOB first proposed these standards, a number of us were concerned that the auditing profession might be getting into the business of second-guessing not only disclosures on related party transactions and executive compensation, but also the substance of transactions and compensation. For one thing, the proposal stated that auditors would need to assess the risks associated with these areas, which led the Society of Corporate Secretaries and Governance Professionals and others to politely suggest that the PCAOB should stay away from the area (you can find the Society’s comment letter here).
In response to these comments, the PCAOB tweaked its language a bit and gave some mild assurances that its intent was misunderstood and that it didn’t want to get into the weeds as feared. However, references to executive compensation stayed in the standards, and their wording doesn’t rule out the possibility that those weeds might be gotten into after all.
So when your auditors offer you this new piece of candy for Halloween, maybe you should ask for some reassurances before you bite into it.
What do you think?