Question 1

Dunkirk Monearmore is a publicly traded Irish investment entity. The CFO wants to invest in Killarney Entity. How much can he invest in Killarney before the two companies are related?
A) 0%
B) 49%
C) 50%
D) 100%

Accepted Answer

In many jurisdictions, including Ireland, two companies are generally considered to be related entities if one holds 50% or more of the voting rights in the other. Therefore, investing up to 49% would not make them related entities.

Question 2

Which does not require a related party disclosure for Lawrence Construction?
A) The CEO of Lawrence is closely related to the CEO of another entity
B) A governmental body has significant influence over Lawrence Construction
C) Lawrence and Terrebonne Construction are both controlled by Edmondston Capital.
D) The CEO has a majority ownership interest in Richelieu Fabrication.
E) None of the above

Accepted Answer

All the scenarios described in options A, B, C, and D involve relationships or influences that could potentially affect the financial statements of Lawrence Construction and thus would typically require disclosure as related party transactions or relationships under accounting standards.

Question 3

Which must an entity disclose at a minimum concerning a related party?
I. Non-cash transactions
II. Cash transactions
III. Outstanding balances and commitments
IV. Provisions for doubtful accounts for the related party
V. Bad debt expenses from the related party
A) I, II, and III
B) II and III
C) IV and V
D) All of the above
E) None of the above

Accepted Answer

Entities must disclose information about transactions, outstanding balances, commitments, provisions for doubtful accounts, and bad debt expenses involving related parties to provide transparency and insight into the financial relationships and risks associated with these parties.

Question 4

A person or a close member of that person's family is related to a reporting entity if that person:
A) has control or joint control of the reporting entity.
B) has significant influence over the reporting entity.
C) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
D) all of the above

Accepted Answer

All the options listed (A, B, and C) describe situations in which a person or a close family member is considered related to a reporting entity, according to standard definitions in financial reporting and accounting standards. Control, significant influence, and being a part of key management personnel are all criteria that establish a related party relationship.

Question 5

A related party can be all of the following except
A) a person
B) a group of persons
C) a competitor's subsidiary
D) joint venture

Accepted Answer

A related party in financial and business contexts typically includes individuals or entities that have a relationship with the reporting entity, such as its owners, managers, affiliates, and joint ventures. Competitors' subsidiaries do not fall under the definition of related parties as they do not have a direct or indirect relationship of control, joint control, or significant influence with the entity.

Question 6

If entity A controls Entities B and C
A) entity A is related to entities B and C
B) entity B is related to entity A but not to entity C
C) entity C must disclose dealings with entity A but not with entity B
D) entity B is related to entity C

Accepted Answer

The answer of If entity A controls Entities B and...

Question 7

IAS 24 requires the details about the relationship between parent and subsidiaries to be disclosed
A) even if no transactions between the parent and subsidiaries occurred during the reporting period.
B) only if transactions between the parent and subsidiaries occurred during the reporting period.
C) only if material transactions between the parent and subsidiaries occurred during the reporting period.
D) only if the parent or subsidiaries show a profit from the transactions during the reporting period.

Accepted Answer

IAS 24 requires disclosure of relationships between a parent and its subsidiaries regardless of whether there have been transactions between them. This is to ensure transparency and provide users of financial statements with all relevant information about the entity's relationships.

Question 8

When an entity has related parties, but does not transact business with them, there is no effect on the profit or loss or dealings of that entity.

Accepted Answer

Even if an entity does not transact business with its related parties, the existence of these relationships must be disclosed as they might affect the decisions of the users of financial statements. The relationships themselves can influence the entity's dealings and financial position, even without direct transactions.

Question 9

Casey Diesel is a publicly traded entity that manufactures diesel train engines. Each train engine requires 12 special five-gallon-bucket-sized pistons and four large carburetors. These parts are sourced from Altex Aluminum Casting. Jennifer Casey is the CEO of Casey Diesel, and her brother is a controller that has some (not significant) influence. These are not related parties.

Accepted Answer

Jennifer Casey and her brother are not related parties because they are not related by blood or marriage.

Question 10

Henry is the CFO of Cheltenham Entity. He also sits on the board of directors for Gloucester Entity. These two are not related parties.

Accepted Answer

Henry is not a member of the key management of Gloucester Entity, and the two entities are not related parties.

Question 11

Montauk Foundries casts iron bench planes. Montauk is controlled by the CEO of Woodcraft. Montauk must disclose a related party relationship with Woodcraft.

Accepted Answer

Montauk Foundries must disclose a related party relationship with Woodcraft because the CEO of Woodcraft controls Montauk, indicating a significant influence over the company's management or financial policies, which is a key aspect of related party transactions requiring disclosure under accounting and financial reporting standards.

Question 12

When identifying possible related party relationships, the legal form of the relationship rather than the substance of each relationship is assessed.

Accepted Answer

When identifying possible related party relationships, the substance of each relationship is assessed rather than the legal form. This approach ensures that the economic realities of the relationships are considered, rather than just the legal constructs.

Question 13

Key management personnel of an entity or of a parent of the reporting entity, or a close member of that person's family, are considered to be related parties of the entity.

Accepted Answer

Key management personnel and their close family members are considered related parties because they have the ability to influence or control the reporting entity, either directly or indirectly, through their decision-making power.

Question 14

The entity should disclose the compensation of key management personnel.

Accepted Answer

According to various accounting standards, such as IFRS (International Financial Reporting Standards) and generally accepted accounting principles in many jurisdictions, entities are required to disclose the compensation of key management personnel to provide transparency and allow stakeholders to assess the influence of compensation structures on management decisions.

Question 15

When an entity assesses if two parties are related, the entity treats a party with significant influence the same way it would treat the relationship that exists between the entity and a member of its key management personnel.

Accepted Answer

In accounting and financial reporting, a party that has significant influence over the entity is considered a related party, similar to the relationship between the entity and its key management personnel, due to the ability to affect financial and operating policies.

Question 16

Bali Entity (BE) gave a car that it no longer needs to its chief operating officer. He took ownership of the car as a bonus for services performed during the reporting period. Is this an event that needs to be disclosed? Why or why not?

Accepted Answer

The answer of Bali Entity (BE) gave a car that...

Question 17

Alpha Entity jointly controls Bravo Entity and has significant influence over Charlie Entity. Which entities are related parties?

Accepted Answer

The answer of Alpha Entity jointly controls Bravo Entity and...

Question 18

Alpha Entity (AE) controls Bravo Entity (BE). BE has significant influence over Charlie Entity (CE). CE controls Delta Entity (DE). Echo Entity (EE) has significant influence over CE. Which entities are related parties?

Accepted Answer

The answer of Alpha Entity (AE) controls Bravo Entity (BE)....

Question 19

Parent A has a controlling interest in Subsidiary A and has significant influence over Associate A. Subsidiary A has significant influence over Associate B. Which entities are related parties?

Accepted Answer

The answer of Parent A has a controlling interest in...

Question 20

Mr. Zoolo has a 90% investment in Alpha Entity (AE) and is a member of the key management personnel of Bravo Entity (BE). Which entities are related parties?

Accepted Answer

The answer of Mr. Zoolo has a 90% investment in...

Quiz 8: Related Party Disclosures

Dunkirk Monearmore is a publicly traded Irish investment entity. The CFO wants to invest in Killarney Entity. How much can he invest in Killarney before the two companies are related?

Which does not require a related party disclosure for Lawrence Construction?

Which must an entity disclose at a minimum concerning a related party? I. Non-cash transactions II. Cash transactions III. Outstanding balances and commitments IV. Provisions for doubtful accounts for the related party V. Bad debt expenses from the related party

A person or a close member of that person's family is related to a reporting entity if that person:

A related party can be all of the following except

If entity A controls Entities B and C

IAS 24 requires the details about the relationship between parent and subsidiaries to be disclosed