Question 1

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

Accepted Answer

False

Question 2

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 and the nature of the relationship, but it does not preclude disclosure of transactions that were made on arm's length terms. In fact, disclosure should include information regarding the terms of the transactions.

Question 3

Related parties are not considered to be interdependent:

Accepted Answer

Related parties are considered to be interdependent as they have a close relationship and their transactions can affect each other.

Question 4

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

Accepted Answer

Related-party transactions can pose risks to the reporting entity, but they can also generate benefits such as increased efficiency and access to resources. However, it is important for such transactions to be disclosed and for appropriate measures to be taken to mitigate any potential conflicts of interest.

Question 5

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 does not necessarily have to have been exercised in the past. It may be sufficient if control can be demonstrated through other means, such as ownership or influence.

Question 6

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

Accepted Answer

According to the International Financial Reporting Standards (IFRS), liquidators are considered to be acting as representatives of the entity and are therefore classified as its directors. This means that they would fall under the definition of related parties and their transactions with the entity would need to be disclosed in the financial statements.

Question 7

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 relationships between parents and subsidiaries even if there have been no transactions between them in order to provide stakeholders with clarity on potential conflicts of interest or influence on decision-making.

Question 8

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 Corporations Act does require 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).

Question 9

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

Accepted Answer

When two or more entities have a common controlling entity, they are considered to be related parties, also known as other related parties. This relationship can impact transactions and financial reporting, as related party transactions must be disclosed and may require additional scrutiny.

Question 10

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 improve transparency and reduce the potential for fraudulent activities, which can increase the trust and confidence of overseas investors in the Australian capital market.

Question 11

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 is required to provide relevant information to users of financial reports, as knowledge of such transactions and relationships may affect their assessments of an entity's operations and financial performance. This helps promote transparency and accountability in financial reporting.

Question 12

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

Accepted Answer

AASB 124 "Related Party Disclosures" applies to all entities, including disclosing entities.

Question 13

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 entities...

Question 14

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 15

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 16

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 for various reasons such as family, business partnerships, geographical proximity, etc. They do not necessarily need to be under the common control or influence of a third party.

Question 17

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 who is not acting in that capacity is considered a related party.

Question 18

How is a related party defined for accounting purposes?

Accepted Answer

According to accounting standards, parties are considered to be related if one party has the ability to significantly influence or control the activities of another, or if both parties are under the common control of a third party. This includes parent entities, subsidiaries, and affiliates, as well as individuals or groups that have significant control over or influence on the entity's decisions. It is important to disclose these relationships in financial statements to ensure transparency and avoid any conflicts of interest.

Question 19

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 disclosure of related party transactions and emphasizes that such transactions cannot be presumed to be carried out on an arm's length basis. This is because related parties may have a vested interest in the transaction and may not be acting purely in the best interest of the company. Therefore, the standard requires additional disclosures and considerations for related party transactions.

Question 20

Transactions between the reporting entity and its directors are considered.

Accepted Answer

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

Quiz 26: Related-Party Disclosures