Tutorial: Discussion Questions for Week 4

1. Read the following statements on related party transactions/disclosures and show your

agreement/disagreement. State true or false.

(a) IAS 24 Related Party Disclosures requires relationships between parents and subsidiaries be

disclosed irrespective of whether there have been transactions between those related parties.

True

(b) In IAS 24 Related Party Disclosures, two entities having a director in common are assumed

related parties. False

(c) A major supplier with whom an entity transacts in a significant volume is considered a related

party in IAS 24 Related Party Disclosures. False

2. Explain the two key words' significant influence and control' as used to determine the existence
of related parties.

significant influence -the power to participate in (but not control) an entity's financial and operating
policy decisions the most common relationship in this regard is that between investor and associate

Control-the power to govern an entity's financial and operating policies to obtain benefits from its
activities the power does not have to be exercised

3. "An organization which provides information about its related party transactions would be
more favourably viewed by investors than an organization that does not provide any such
information".

Discuss.

The investors will have a clear knowledge of the risks and see transparency in order to be confident
in investing in to the business. Related parties may enter into transactions that
unrelated parties may not. The investors may see benefits from such transactions if family relatives
hold significant ownership of the entity. For example, a company that sells the finished goods to its
related party at cost price may not sell on that price to another customer.

4. Explain which key management personnel are regarded as related parties and identify the types
of information that much be disclosed in relation to key management personnel related
transaction.

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.  All executive and non-executive directors
should be treated as members of key management personnel, but other persons may also
qualify. For example, if a person regularly appears in other financial reports, such as
management commentary, they probably should also be considered a member of key
management personnel. Such a person need not be a ‘legal’ employee of the reporting entity

5. A review of key management personnel disclosure notes will often show that a component of
the salary executives is paid linked to corporate performance. Why do you think an organization
would not just pay directors a fixed salary rather than one based on performance?

Performance-based compensation gives workers incentives to be more productive, which

can ultimately result in higher sales and higher profit for a company. However there is
chances for fraudulent performance reports in order to increase salary or even a lead to
decreased one because of manipulated reports.

6. Identify the disclosures that IAS 24 requires to be provided regarding remuneration paid to key

management personnel. Do you think the costs of making such disclosures outweigh the benefits?

Explain your answer. Key management personnel are those persons having authority and
responsibility for planning, directing, and controlling the activities of the entity, directly or indirectly

Disclosures:

 short-term employee benefits  

 post-employment benefits  

 other long-term benefits  

 termination benefits  

 share-based payment benefits

7. Assume ABC Limited is a listed public company. A large part of its business is carried out with

persons/organizations who are related to the management or the shareholders.

Required: State some key disclosures that must be made due to the existence of related parties or

related party transactions.

the amount of the transactions;

(b)the amount of outstanding balances, including commitments, and:

(I)their terms and conditions, including whether they are secured, and the nature of the
consideration to be provided in settlement; and

(ii)details of any guarantees given or received;

(c)provisions for doubtful debts related to the amount of outstanding balances; and

(d)the expense recognised during the period in respect of bad or doubtful debts due from related
parties.

8. Choose one entity from each of the following three business sectors and identify the types of

transactions (e.g., goods and services) that the entities might engage in with related parties under

normal commercial terms and conditions.

(a) Transport sector

(b) Retailing sector

(c) Construction sector

(d) Banking sectors