Deck 26: Related-Party Disclosures

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

Related parties are not considered to be interdependent:

Answer 3

False

Question 4

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

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:

Question 6

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

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.

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).

Question 9

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

Question 10

A potential benefit of requiring extensive related-party disclosures is to increase the 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.

Question 12

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

Question 13

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

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".

Question 15

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

Question 16

In order for two parties to be related they must 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.

Question 18

How is a related party defined for accounting purposes?

A) Parties are considered to be related if they have a regular set of transactions and a history of trading together.
B) Parties are deemed to be related if they are a financial institution that has regular loan business with the entity.
C) Related parties are those that have been identified as conducting transactions in a manner that disadvantages the reporting entity and provides a benefit to the entity deemed to be the related party.
D) Parties are deemed 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.
E) None of the given answers.

Question 19

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

Question 20

Transactions between the reporting entity and its directors are considered.

A) Not prone to the risks associated with related-party transactions because directors have a self-interested motivation to put the interests of the entity first.
B) Unlikely to be material in size in relation to most listed companies and therefore not normally required to be reported.
C) To all be related-party transactions and material regardless of their size.
D) Prone to the same risks for reporting and other entities as all related-party transactions, and therefore treated the same way.
E) None of the given answers.

Question 21

The disclosure requirements of AASB 124 are grouped in part by:

A) Currency of transaction: transactions should be grouped by currency of the transaction so that users can identify any forex risk associated.
B) Size. Three broad categories of disclosure are required depending on the percentage size of the transaction relative to the turnover of the entity. The categories are 0.5 per cent - 9 per cent, 10 per cent - 20 per cent, 21 per cent and over.
C) Frequency: Transactions repeated during the period are distinguished from one-off transactions.
D) Related-party type. The directors of the entity and their director-related entities, entities in the wholly owned group, other related parties.
E) None of the given answers.

Question 22

Entities included in a wholly owned group as defined by AASB 124 include:

A) Entities that have an equity ownership of 20 per cent or greater in an entity that is a subsidiary of an entity that is wholly owned by a party related to the reporting entity.
B) Wholly owned entities' subsidiaries, where subsidiaries are any entity controlled by a parent entity.
C) Entities that are controlled or have significant influence exercised over them by an entity that is wholly owned by a related party of the reporting entity.
D) Subsidiary companies that are wholly owned by a parent company.
E) None of the given answers.

Question 23

A frequently applied practice in relation to the disclosure of related-party transactions of directors is to:

A) Make a general statement that there were some transactions.
B) Not report that there were any transactions.
C) State that the transaction is at arm's length terms and conditions.
D) Specify the number, nature and amount of the transactions with comparisons to arm's length transactions of a similar nature and type.
E) None of the given answers.

Question 24

Some business leaders argue that related-party transactions have benefits for the reporting entity.The benefits are said to include:

A) Lower legal costs associated with contracts.
B) Increased profits for the related entity.
C) Reduced competition among suppliers.
D) Better, more reliable service and better prices.
E) None of the given answers.

Question 25

The commentary to AASB 127 identifies factors that would normally indicate the existence of control.These factors include:

A) The capacity to withdraw a material amount of loan capital.
B) The power to dominate the composition of the board of directors or governing body.
C) The authority to determine the outcome of significant local council decisions relevant to the entity.
D) The capacity to withdraw a material amount of loan capital and the power to dominate the composition of the board of directors or governing body.
E) All of the given answers.

Question 26

Reasons for the requirement to disclose related-party transactions include:

A) The risk that the performance and position of the reporting entity will be negatively affected by the transactions.
B) Key stakeholders of the entity include related parties who should be kept informed of their transactions.
C) Related-party transactions may be used to minimise total taxation payable by a group of related entities.
D) The risk that the performance and position of the reporting entity will be negatively affected by the transactions and related-party transactions may be used to minimise total taxation payable by a group of related entities.
E) None of the given answers.

Question 27

Which of the following transactions is usually not considered a "related party" in AASB 124?

A) Leasing arrangement with a joint venturer
B) Sale of inventory to a subsidiary
C) Write-off of an immaterial loan to a director
D) Sale of non-current assets to an associate
E) Issue of bonus shares to directors

Question 28

In the following diagram,which entities would be included in a wholly owned group according to the definition in AASB 124?

A) F Ltd, G Ltd, H Ltd, I Ltd.
B) F Ltd, G Ltd, K Ltd, H Ltd, I Ltd.
C) G Ltd, K Ltd, H Ltd, I Ltd.
D) G Ltd, K Ltd, H Ltd, I Ltd, J Ltd.
E) None of the given answers.

Question 29

AASB 124 defines control as:

A) The exercise of power to direct the decision-making of another entity in relation to financial and operational decisions so as to enable the controlling entity to benefit as a result.
B) The capacity to influence the financial and operational decision-making of another entity through the board of directors so as to achieve the co-operation of the other entity in obtaining the ends of the controlling entity.
C) The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
D) The potential ability to obtain desired outcomes through another entity by influence through representatives on the governing board of the other entity.
E) None of the given answers.

Question 30

AASB 124 defines directors as including:

A) Any employee of the entity whether or not they are validly appointed to occupy the position.
B) Any person that directs an entity in its financial and operating activities regardless of whether they are known by the title of director.
C) Any person in accordance with whose instructions the directors of an entity are accustomed to act.
D) Any person that directs an entity in its financial and operating activities regardless of whether they are known by the title of director and any person in accordance with whose instructions the directors of an entity are accustomed to act.
E) None of the given answers.

Question 31

A related-party transaction is material if:

A) Its omission from the report or misstatement would result in significant financial disadvantage to a third party, whether it be an owner, debt-holder or other stakeholder, or if it involves the auditor.
B) Its omission, non-disclosure, or misstatement has the potential to affect decisions about the allocation of scarce resources by users of the accounts and consolidated accounts, or the discharge of accountability by directors or if it is a transaction by a director with the reporting entity.
C) Its omission from the report or misstatement would result in the accounts not providing an accurate representation of the financial position or performance of the reporting entity, or if it is a transaction by any member of the senior management of the reporting entity.
D) Its omission, non-disclosure, or misstatement has the potential to affect decisions about the allocation of scarce resources by users of the accounts and consolidated accounts, or the discharge of accountability by directors.
E) None of the given answers.

Question 32

Other related entities for disclosure purposes in AASB 124 include:

A) Partly owned controlled entities.
B) Directors of related parties who are not directors of the reporting entity and their director-related entities.
C) Entities subject to common control that are not part of the wholly owned group.
D) Parent entities that are not part of the wholly owned group.
E) All of the given answers.

Question 33

The definition of related parties relies on three key terms.These are:

A) Directors, control and significant influence.
B) Input, effect and common control.
C) Authorised trustee corporations, material influence, control.
D) Common control, directors, material influence.
E) None of the given answers.

Question 34

Disclosure information under AASB 124 is aggregated by:

A) Forex currency base, size of the transaction and class of related party.
B) Size of the transaction, type of transaction and frequency of the transaction.
C) Type of transaction, nature of terms and conditions, and class of related party.
D) Nature of terms and conditions, class of related party, and frequency of the transaction.
E) None of the given answers.

Question 35

The disclosure requirements of AASB 124 include:

A) Disclosure of the fair value of a transaction with a related party.
B) Restatement of the transaction to its fair value in the accounts of the entity.
C) Comparative transactions with non-related parties to form a basis for a fair value assessment by users of the accounts.
D) Disclosure of the fair value of a transaction with a related party and comparative transactions with non-related parties to form a basis for a fair value assessment by users of the accounts.
E) None of the given answers.

Question 36

Reasons for the requirement to disclose related-party transactions include:

A) These transactions will always be eliminated in a consolidation so otherwise there would be no record of them in a set of consolidated accounts.
B) A history of corporate scandals involving related-party transactions in Australia, the US, the UK and Canada.
C) The risk that the auditor may be a related party and this must be disclosed.
D) A history of corporate scandals involving related-party transactions in Australia, the US, the UK and Canada; and the risk that the auditor may be a related party and this must be disclosed.
E) None of the given answers.

Question 37

The definition of related parties under AASB 124 excludes entities (other than those specified earlier in the relevant paragraph)where the related-party relationship:

A) Is a relationship formed more than 5 years prior to the current reporting period.
B) Results solely from normal dealings of local governments.
C) Is a commonly known and transparent link between entities in the public sphere.
D) Is based on a relationship to the directors through marriage only.
E) None of the given answers.

Question 38

Significant influence is defined in AASB 124 as:

A) A majority ownership relationship such that the parent entity is able to dominate the decision-making of the other entity.
B) The exercised ability to materially affect the financial and operational decisions of another entity.
C) The influence that is attached to owning a parcel of shares or other equity instruments of another entity.
D) The power to participate in the financial and operating policy decisions of an entity, but is not control over those policies.
E) None of the given answers.

Question 39

Tests to indicate whether significant influence exits include:

A) Participating in decisions on the distribution or retention of the associate's profits.
B) The ability to dominate the decision-making of the board of directors.
C) The extent of ownership interest between the entities.
D) Participating in decisions on the distribution or retention of the associate's profits and the extent of ownership interest between the entities.
E) All of the given answers.

Question 40

The following diagram shows three companies and their associated equity ownership percentages.Which of the companies shown would most likely be considered related entities?

A) F and G, and G and H are related parties.
B) F and G, G and H, and F and H are related parties.
C) Only G and H are related parties.
D) Only F and H are related parties.
E) None of the given answers.

Question 41

Which of the following statements is not in accordance with AASB 124 "Related Party Disclosures"?

A) A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged.
B) If there have been transactions between related parties, an entity shall disclose the nature of the related party relationship as well as information about the transactions and outstanding balances necessary for an understanding of the potential effect of the relationship on the financial statements.
C) Transactions between the reporting entity and its key management personnel are deemed material.
D) Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.
E) In AASB 124 "Related Party Disclosures", two entities having a director in common are assumed related parties.

Question 42

Which of the following parties is/are covered by the definition of a related party in AASB 124?

A) Independent directors.
B) Retired chief executive officer.
C) Son-in-law of an executive director.
D) All of the given answers.
E) Retired chief executive officer and son-in-law of an executive director.

Question 43

AASB 124 requires disclosure of:

A) all material related party transactions only.
B) all material transactions with directors and its close family members.
C) all material related party transactions except those derived by virtue of normal dealings with a customer.
D) All of the given answers.
E) all material related party transactions only and all material transactions with directors and its close family members.

Question 44

Tennant Creek Ltd has following transactions during the year: Which of the following lists all the related party transactions that are required to be disclosed in AASB 124 "Related Party Disclosures"?

A) I and III;
B) III and V;
C) II, III and IV;
D) I, IV and V;
E) II, V and VI.

Question 45

If there had been a related party transaction during the period,the disclosures required by AASB 124 director-related entities include:

A) Annual income in aggregate amount and the number in $10 000 bands.
B) Retirement benefits.
C) Aggregate number of shares, units, options and other equity instruments acquired and disposed of, by issuing entity and class of share, unit, option or equity instrument.
D) Their names.
E) All of the given answers.

Question 46

The disclosures that AASB 124 requires for other related parties are:

A) Limited to the aggregate amount, nature and type of transaction.
B) Largely the same as the disclosure requirements for directors of the entity.
C) Fairly consistent with the requirements for the wholly owned group.
D) Limited to the nature and terms and conditions of each different type of transaction.
E) None of the given answers.

Question 47

Cobourg Ltd has following transactions during the year: Which of the following lists all the related party transactions required to be disclosed in AASB 124 "Related Party Disclosures"?

A) I and II;
B) III and IV;
C) II, IV and V;
D) I, II, IV and VI;
E) III, IV, V and VI;

Question 48

According to AASB 124,disclosures required for transactions with related parties in the wholly owned group include:

A) The aggregate amounts receivable from and payable to related parties as at the reporting date classified into current and non-current categories.
B) Aggregate number of shares and options held by the related party as at the reporting date including the class of share, unit, option or other equity instrument.
C) The nature of terms and conditions of share and option transactions.
D) The fair value of any equity transaction with any related party as at the reporting date.
E) None of the given answers.

Question 49

Which of the following disclosures on key management personnel is/are required in AASB 124 for disclosing entities?

A) Name of the person.
B) Position held.
C) Qualification(s) of the person.
D) All of the given answers.
E) Name of the person and position held.

Question 50

Which of the following statement(s)is/are correct?

A) A related party transaction is a transfer of resources, services or obligations between related parties that is not at arm's length.
B) The existence of a related party transaction can expose an entity to risks or opportunities that otherwise would not have existed in the absence of the relationship.
C) Related parties include organisations that are under the control or significant influence of the entity and individuals such as key management personnel and their close family members.
D) All of the given answers.
E) The existence of a related party transaction can expose an entity to risks or opportunities that otherwise would not have existed in the absence of the relationship and related parties include organisations that are under the control or significant influence of the entity and individuals such as key management personnel and their close family members

Question 51

Which of the following is usually not a related party as referred to in AASB 124 "Related Party Disclosures"?

A) Subsidiary
B) Associate
C) Son-in law of the Chief Executive Officer
D) Trade union official
E) None of the given answers

Question 52

Which of the following is a not related party within the provisions of AASB 124 "Related Party Disclosures"?

A) Associates
B) Non-executive directors
C) Executive personnel
D) Bankers
E) Subsidiaries

Question 53

With respect to loans made to a related party,which of the following statement(s)is/are correct in accordance with AASB 124?

A) The details of each aggregate of loans made to key management personnel and their related parties must be disclosed.
B) The details of each aggregate of loans made to a key management person and their related parties whose loan exceeded $100 000 at any time during the period.
C) The details of material loans made to key management personnel and their related parties must be disclosed.
D) All of the given answers.
E) The details of each aggregate of loans made to key management personnel and their related parties must be disclosed and the details of each aggregate of loans made to a key management person and their related parties whose loan exceeded $100 000 at any time during the period.

Question 54

Directors' income is defined in AASB 124 as including only:

A) The regularly paid salary of the directors.
B) The regularly paid salary, any bonuses paid and retirement benefits.
C) Bonuses, commissions or salaries, retirement benefits and any brokerage or commission made on the subscription or agreement to subscribe to equity instruments in the entity or any of its related parties.
D) Bonuses, commissions or salaries, reimbursement for expenses and any brokerage or commission made on the subscription or agreement to subscribe to equity instruments in the entity or any of its related parties.
E) None of the given answers.

Question 55

AASB 124 provides guidance regarding the measurement of remuneration amounts for directors such that:

A) Remuneration should be measured at cost to the entity or related party and includes any money, consideration or benefit with some specified exceptions.
B) Where directly identifiable, the remuneration should be measured at cost; however, where the measurement of considerations or benefit requires an estimation the amount should be reflected at fair value according to an arm's length transaction for a similar consideration or benefit.
C) Remuneration amounts should be disclosed at the fair value of the elements of the emoluments package offered, including any benefits or consideration that take the form of access to resources of the entity or its related parties.
D) Remuneration amounts should be disclosed at the net realisable value of the elements of the emoluments package offered. In the case of benefits or considerations that take the form of access to resources of the entity or its related parties, these should be disclosed at the deprival value to the relevant entity.
E) None of the given answers.

Question 56

Which of the following is typically a related party transaction within the provisions of AASB 124 "Related Party Disclosures"?

A) Transactions between two entities with a common non-executive director.
B) Transactions between two entities that share control over another joint venture.
C) Transactions between an entity and its biggest finance provider.
D) Transactions between entities under common control of another entity.
E) Transactions between entities with common auditors.

Question 57

Close family members of key management personnel include:

A) Domestic partner and children.
B) Children of domestic partner.
C) Dependents of domestic partner.
D) All of the given answers.
E) Domestic partner and children and children of domestic partner.

Question 58

Transactions with and amounts receivable from or payable to a key management person and their related parties are excluded from additional disclosures when:

A) The transactions occur within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those that it is reasonable to expect the entity would have adopted if dealing with an unrelated person.
B) The information about them does not have a potential to affect adversely decisions about the allocation of scarce resources made by the users of the financial report, or the discharge if accountability by the key management person.
C) These are trivial or domestic in nature.
D) All of the given answers.
E) The transactions occur within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those that it is reasonable to expect the entity would have adopted if dealing with an unrelated person and the information about them does not have a potential to affect adversely decisions about the allocation of scarce resources made by the users of the financial report, or the discharge if accountability by the key management person.

Question 59

The disclosures required by AASB 124 for key management personnel include:

A) The name of the person.
B) The position held.
C) Dates identifying the period of responsibility.
D) All of the given answers.
E) The name of the person and the position held.