Disclosure of related parties is essential in financial reporting because:
A) related parties cannot be trusted;
B) there are certain limits imposed on entities in regards to how many related party transactions they could have;
C)related parties have the potential to affect an entity's profit or loss and financial position that might not otherwise occur;
D) a high number of corporate collapses are caused by related party transactions.

Question

Disclosure of related parties is essential in financial reporting because:
A) related parties cannot be trusted;
B) there are certain limits imposed on entities in regards to how many related party transactions they could have; 
C)related parties have the potential to affect an entity's profit or loss and financial position that might not otherwise occur;
D) a high number of corporate collapses are caused by related party transactions.

Quizplus · Accepted Answer

Related parties have the potential to affect an entity's profit or loss and financial position that might not otherwise occur. It is important to disclose these relationships to provide stakeholders with transparency and enable them to make informed decisions about the entity's financial health. This disclosure can also help prevent fraudulent or unethical behavior. While there are limits on related party transactions, this is not the primary reason for disclosure. Additionally, while some corporate collapses may be caused by related party transactions, this is not true for all collapses and is not the primary reason for disclosure.

Disclosure of Related Parties Is Essential in Financial Reporting Because