Related Parties & Going Concern

Related parties

• Inquire of management; stay alert when reading records.
• Find hidden ones via: board minutes, conflict-of-interest statements, proxy filings, unusual or year-end transactions, loans at unusual rates, guarantees in confirmations.
• Significant unusual transactions → inspect contracts, business rationale, approval.
• "Arm's-length" claim not supported → qualified or adverse opinion.

Going concern

• Period: 1 year after issuance (US Generally Accepted Accounting Principles (GAAP)).
• No special procedures required unless conditions exist.
• Management's plans: probable of implementation and mitigation; third-party support → intent and ability.

Reporting

Situation	Report
Doubt alleviated	Unmodified (optional emphasis)
Doubt remains, disclosed	Unmodified + going concern section
Doubt remains, not disclosed	Qualified or adverse
Basis inappropriate	Adverse

No conditional language ("if it continues…").

Exam traps

• Issuers (Public Company Accounting Oversight Board (PCAOB) audits): the going concern period is a reasonable period not exceeding one year beyond the balance sheet date — not one year after issuance.
• The going concern section must use the words "substantial doubt" and "going concern".
• No going concern section is not a guarantee that the entity will continue.
• Related party transactions don't have to be at arm's length — the requirement is adequate disclosure.