The statutory audit's transfer pricing cross-check does not repeat the economic analysis in the transfer pricing study — that is the tax team's and the accountant's work under section 92E. The audit's role is to independently confirm the population of international transactions and specified domestic transactions reported in Form 3CEB is complete against the related-party ledger and the general ledger, that the transfer pricing method stated in the Form is the one actually used to price the transactions in the books rather than a method adopted only for documentation purposes, and that any transaction identified by the audit's own related-party procedures but absent from Form 3CEB is investigated before the audit concludes.
Completeness: the population Form 3CEB is built on
- Obtain the entity's related-party master and the general ledger extract for all transactions with associated enterprises, and independently build a transaction list rather than starting from the list already compiled in Form 3CEB — building the list independently is what makes this a cross-check rather than a review of someone else's work.
- Compare the independently built list to the transactions reported in Form 3CEB and investigate every difference — a transaction omitted from the Form because it was below a materiality threshold the tax team applied is still worth confirming was a deliberate, documented exclusion rather than an oversight.
- Pay particular attention to transactions that do not look like typical cross-border dealings on their face: a corporate guarantee given on behalf of an associated enterprise, a secondment of employees, or a cost allocation under a shared-services arrangement are all international transactions for this purpose and are commonly missed in the first pass.
Method consistency and books agreement
| Check | Evidence | What it catches |
|---|---|---|
| Transaction completeness | Related-party ledger, GL extract, Form 3CEB transaction schedule | Transactions omitted from the Form, often shared-services or guarantee arrangements |
| Pricing method consistency | Transfer pricing study, intercompany agreements, invoices | A method stated in documentation that doesn't match how the price was actually set in practice |
| Value agreement | Form 3CEB transaction values, trial balance | Values in the Form that don't reconcile to the books, often due to a different currency conversion date |
| Specified domestic transactions | Domestic related-party transactions subject to transfer pricing provisions | Domestic transactions treated as outside scope when the applicable thresholds bring them into scope |
Regulatory requirement
The scope of international transactions and specified domestic transactions, and the thresholds that bring a domestic related-party transaction into transfer pricing scope, are set under the Income Tax Act. Confirm the current thresholds and definitions before relying on a classification carried forward from a prior year.
How we think about this
Building the transaction population independently rather than starting from the accountant's Form is the discipline that makes this a real cross-check. Starting from the Form and merely re-footing it only confirms the Form is internally consistent, not that it is complete.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Related parties & disclosuresIdentifying related parties: the audit starting pointA client declaration is a starting point for the related-party list, not evidence of it. How to build and cross-check the list independently.
- Related parties & disclosuresRelated-party transaction testing under AS 18 / Ind AS 24Testing related-party transactions means proving the population is complete before checking what management already disclosed.
- CARO & Companies ActCARO clause 3(xiii): related party compliance, and the two provisions it checks togetherTwo separate Companies Act provisions, both checked by one clause — approval through the audit committee, and approval under Section 188's own separate threshold.
- Related parties & disclosuresSection 188 compliance: what an auditor checksSection 188 approval is a governance fact to verify against minutes, not an assumption to carry forward from last year's file.
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