- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 3. Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits
- Subject 2. Corporate Governance Mechanisms
CFA Practice Question
Select the correct statements about related-party transactions.
II. Companies have to disclose related-party transactions even if they are non-material.
I. Related-party transactions are illegal.
II. Companies have to disclose related-party transactions even if they are non-material.
Correct Answer: Neither statement is correct.
II. Current accounting and auditing standards require the disclosure of these transactions only if they are material.
I. Related-party transactions are not illegal nor necessarily a violation of any kind.
II. Current accounting and auditing standards require the disclosure of these transactions only if they are material.
User Contributed Comments 6
| User | Comment |
|---|---|
| johntan1979 | Nobody cares if it's non-material. |
| ascruggs92 | ^Be careful, that's how embezzlement happens. $10M is not material if you have $5B in revenue each year, but taking that and putting it in your pocket a couple years in a row will make you rich |
| cfastudypl | Frequency of transactions are critical in the assessment of whether an item is material or not. Accounting and auditing guidelines and standards are quite resourceful in this regard. |
| ashish100 | $10M is material regardless of how much revenue a company makes. Would a billionaire not pick up a $100 bill from the side of the road? |
| UcheSam | Please in work environment, disclose and lodge related party transactions, material or not, with compliance team. I have seen staff disengaged on non- material and trivial amount. The intent was looked at. Auditing standards are based on sampling. |
| pranavnmbr | materiality is rather a subjective matter rather than objective. |