Question 1

A major supplier with whom an entity transacts a significant volume of business is considered a related party in AASB 124 "Related Party Disclosures".

Accepted Answer

A major supplier with whom an entity transacts a significant volume of business is not automatically considered a related party under AASB 124. Related parties are typically identified by their ability to control or significantly influence the entity, rather than merely through the volume of business conducted.

Question 2

A potential benefit of requiring extensive related-party disclosures is to increase the confidence of overseas investors in the Australian capital market:

Accepted Answer

Requiring extensive related-party disclosures can enhance transparency and provide more information for investors, particularly overseas investors. This increased transparency can increase their confidence in the capital market, leading to greater investment flows and a stronger market.

Question 3

Disclosing entities are within the scope of AASB 124 "Related Party Disclosures".

Accepted Answer

Disclosing entities are required to disclose all related party transactions and relationships as per the requirements of AASB 124.

Question 4

Disclosure of related party transactions is required because knowledge of related party transactions, outstanding balances and relationships may affect assessments of an entity's operations by users of financial reports.

Accepted Answer

Disclosure of related party transactions helps in providing transparency and helps users of financial reports make more informed decisions. Knowledge of such transactions and relationships can affect assessments of an entity's operations. Therefore, it is required to disclose related party transactions in financial reports.

Question 5

Related-party transactions pose serious risks to the reporting entity and generate no benefits:

Accepted Answer

Related-party transactions can generate benefits for the reporting entity, such as cost savings or access to resources. However, they do pose serious risks of conflicts of interest and potentially misstated financial statements if the transactions are not properly disclosed and accounted for.

Question 6

AASB 124 reflects the view that transactions carried out by related parties cannot be presumed to be at arm's length:

Accepted Answer

AASB 124 requires that related party transactions be disclosed in the financial statements and that they are treated as if they were carried out on an arm's length basis. Related party transactions cannot be presumed to be at arm's length as there may be a conflict of interest between the parties involved.

Question 7

In AASB 124 "Related Party Disclosures", two entities having a director in common are assumed related parties.

Accepted Answer

The answer of In AASB 124 "Related Party Disclosures", two...

Question 8

In order for two parties to be related they must be under the common control or influence of a third party:

Accepted Answer

Two parties can be related through various factors such as shared interests, history, or dependencies without the involvement of a third party.

Question 9

In order for control to exist as the basis for a related-party disclosure the capacity to control must have been demonstrated as having been exercised in the past:

Accepted Answer

In order for control to exist as the basis for a related-party disclosure the capacity to control must be present, regardless of whether it has been exercised in the past or not.

Question 10

AASB 124 "Related Party Disclosures", requires relationships between parents and subsidiaries be disclosed irrespective of whether there have been transactions between those related parties.

Accepted Answer

AASB 124 requires disclosure of related party relationships even if there have been no transactions between those parties. This is to ensure that users of financial statements have a clear understanding of any potential influence or conflicts of interest that may exist.

Question 11

The Corporations Act requires shareholder approval for any agreement to pay a prospective executive or director a retirement benefit greater than their final salary multiplied by their number of years of service (with an upper limit of seven years).

Accepted Answer

The statement accurately describes the requirement for shareholder approval for retirement benefits exceeding a certain limit under the Corporations Act.

Question 12

An alternate director who is not acting in that capacity is considered a related party in AASB 124.

Accepted Answer

According to paragraph 9 of AASB 124 Related Party Disclosures, an alternate director is considered a related party even if they are not acting in that capacity.

Question 13

How is a related party defined for accounting purposes?

Accepted Answer

According to accounting standards, parties are deemed to be related if one party has significant influence or control over the other or both parties are under the common control of a third party. This definition includes not only subsidiaries and affiliates but also individuals and entities that have the ability to significantly influence or control the financial and operating policies of the entity. Transactions with related parties must be disclosed in financial statements to ensure transparency and prevent any conflicts of interest. Therefore, choice D is the correct answer.

Question 14

Transactions between the reporting entity and its directors are considered.

Accepted Answer

The answer of Transactions between the reporting entity and its...

Question 15

Related parties are not considered to be interdependent:

Accepted Answer

Related parties, by definition, have a relationship that affects their financial or contractual transactions. Therefore, their actions and decisions can be interdependent, which contradicts the statement in the question.

Question 16

Entities that have a controlling entity in common are considered to be 'other related parties':

Accepted Answer

Entities that have a controlling entity in common are considered to be other related parties. This could include subsidiaries, parent companies, or other entities that share a common owner or controller. It is important to disclose any transactions or relationships with other related parties in financial statements to ensure transparency and accuracy.

Question 17

AASB 124 requires a standard, detailed set of disclosure requirements for all related-party transactions:

Accepted Answer

The answer of AASB 124 requires a standard, detailed set...

Question 18

The most common example of a relationship reflecting control is that between an investor and its associate company:

Accepted Answer

The most common example of a relationship reflecting control is between a parent company and its subsidiary, where the parent company has the power to govern the financial and operating policies of the subsidiary.

Question 19

AASB 124 precludes disclosure that related party transactions were made on terms equivalent to those that prevail in arm's length.

Accepted Answer

AASB 124 requires disclosure of related party transactions, including the nature of the relationships and the terms and conditions of the transactions. It does not preclude disclosure that related party transactions were made on terms equivalent to those that prevail in arm's length transactions. In fact, such disclosure is often necessary to demonstrate that the transactions were conducted at fair value.

Question 20

The liquidators of an entity are considered to be directors for the purposes of defining related parties:

Accepted Answer

The liquidators are considered to be directors and therefore related parties as they are responsible for managing the winding up process of the company. This is stated in the International Financial Reporting Standards (IFRS) under the definition of related parties.

Quiz 26: Related-Party Disclosures