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Under U.S. GAAP and IFRS, key management compensation (i.e., officers' salaries) is considered a related party transaction.

A. True
B. False

1 Answer

5 votes

Final answer:

Under U.S. GAAP and IFRS, key management compensation is not automatically considered a related party transaction but requires separate disclosure because of its significance in assessing management's incentives and influence.

Step-by-step explanation:

Under U.S. GAAP and IFRS, key management compensation (i.e., officers' salaries) is not automatically considered a related party transaction. Related party transactions typically involve transfers of resources, goods, or obligations between related parties, regardless of whether a price is charged. While the compensation of key management personnel is a significant disclosure in financial statements, it is disclosed separately from related party transactions. According to the standards, related parties include family members and entities that are controlled, jointly controlled, or significantly influenced by key management personnel. However, key management personnel compensation is disclosed because of its importance in assessing management's incentives and influence over the reporting entity, rather than as a classic related party transaction.

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