CFA Practice Question

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CFA Practice Question

Select the correct statements about related-party transactions.

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.

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.
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