I don't have the books in front of me to quote the references, but I would put my life on the following procedure (about to hop in an aeroplane -so hope it's the one that is followed)
In the climb: set QNH until passing the transition altitude (e.g. 13000ft )and then set 1013
In the descent: set 1013 until passing the transition level e.g. (FL150) and then set the QNH.
Any other procedure used is likely to result in an aluminum shower - if the QNH is in the region of 30 hPa different from 1013.
The two thousand feet in the tranistion layer will always be a no-mans land - so don't trust pilot level reports, unless you confirm the datum to be used - QNH or 1013.
Some_Else is right in saying that this has no affect on the Mode C readout and is only crucial when getting pilot reports of levels passed/occupied.
Jaws