Horizons Inc. has agreed to sell an investment in a subsidiary that has been accounted for on the equity method of accounting to a minority stockholder in exchange for the stockholder’s share in Horizons. Since the fair value of the investment exceeds its book value, Horizons CEO is considering recognizing a gain on the exchange. However, the new CFO at Horizons is recommending to the board of directors that the excess from the exchange be accounted as a credit to equity. Horizons turn to you for advice!

Auditing Issue:

You are considering whether any related party transactions might be associated with these events. What are the PCAOB Standards associated with the audit requirements for related party transactions, as well as the ASB standards? State the specific PCAOB paragraph references, as well as the ASB’s AU-C paragraph numbers, and summarize the references.