Question - During your review of the revenue accounts at Piper & Pepper Inc.,P&P a public company, you enquired of management about sales to customer account 04-1125. The account accumulates sales to a related company. The president of P&P explained that the sales are at very favourable terms to P&P; in fact, the related company pays more than market value for the items it purchases from P&P. Because of P&P's tax credits, the overall tax payable for the 2 companies is smaller if the revenue (and the income) is reported in P&P. This provides the related company with higher expenses, which also lowers its taxable income.
Required - Clearly identify and explain the matters that should be communicated to the audit committee.