AASB 124 requires “disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent or investors with joint control of, or significant influence over, an investee presented in accordance with AASB 10 Consolidated Financial Statements or AASB 127 Separate Financial Statements.”
Is it possible for companies to achieve their desired objectives through the use related party transactions?
Your assignment should cover the following points
- For each company, identify the related parties and the related party transactions.
- Critically evaluate each related party transaction and identify those you believe are not at market value. Discuss why you believe this to be the case and the incentives behind such transaction.
- Are the disclosures consistent with the requirement of AASB 124?
|Assigned Company name||Related party category +||Type of related party transaction*||Related party amount(full dollar amount)|
|Nike European Operations Netherlands B.V||Parent Entity||Rendering or receiving of services.||Undisclosed|
|Nike Trading Company||Related Party||Distribution agreement||$23,908,968|
|Nike Inc||Parent Entity||Purchase of goods that is sold in the Australian market by Nike Australia Pty Ltd.||Undisclosed|
|Nike New Zealand Company||Related Party||Various administration charges||$2,160,234|
It has been observed that Nike European Operations Netherlands B.V is one of the parent entities and there has not been any mention about any sort of transaction among them. It has been observed that Nike Australia Pty Ltd has key personal and management compensation in the mode of salary and fee paid to them for their services (S1.q4cdn.com 2017).
It has been observed that Nike Australia Pty Ltd in the year 2015, went into a distribution agreement with their related party Nike Trading Company and therefore due to this agreement, Nike Australia makes most of their purchases predominantly from Nike Trading Company. There have been other agreements were even agreed upon by Nike Australia Pty in order to bring back various marketing and other costs. It is seen that cost relating to $23,908,968 was charged back to the Nike Trading Company. It is seen that Nike Australia Pty Company on behalf of Nike New Zealand have been undertaking numerous management and administration services. Such costs are gained back through the management fee and have been offset against the administration costs that are seen in the income statement (Malak, Chern and Shabani 2017).
The transactions that have been undertaken with respect to the related parties have been mainly due to the purchase of the products that have been sold by Nike Australia Pty Ltd in Australia. These transactions have been fundamental in order to maintain competitive edge in the Australian economy and to continue their business in Australia effectively.
The disclosures that have been undertaken by the organization are in accordance to the AASB 124 and the Corporations Act 2001 and the other professional requirements of reporting. The statement of the report provides a fair and true view of the financial scenario of Nike Australia Pty Ltd for the year ended 2015 and its performance in the accounting year that ended on that date. There have been rational aspects to believe that the organization will be able to pay their loans and debts and when they become payable and due (Yarram and Rice 2017). The transactions that have been undertaken are in compliance with AASB 124 as it is seen that all the transactions have been taken effectively. By complying with the AASB 124, the transactions have been true and authentic and hence no hidden costs are available within the transactions. It is seen that the transactions that have been undertaken are not in the market value as transactions in market value as there are numerous incentives behind it (Moschakis, Jerram and Loftus 2016). The incentives are inclusive of various commissions and compensations along with administration and the management fee that are charged back in order tom gain the cost.
Malak, S.S.D.A., Chern, O.S. and Shabani, N.A., 2017. Disclosure of Executive Directors’ Remuneration from Multiple Theoretical Lenses and Cultural Perspective. Advanced Science Letters, 23(4), pp.3151-3154.
Moschakis, N.D., Jerram, C. and Loftus, J., 2016. Voluntary financial reporting strategies of South Australian independent schools. Third Sector Review, 22(1), p.25.
S1.q4cdn.com. (2017). NIKE FY2015 Annual Report. [online] Available at: https://s1.q4cdn.com/806093406/files/doc_financials/2015/ar/ [Accessed 9 Oct. 2017].
Yarram, S.R. and Rice, J., 2017. Executive compensation among Australian mining and non-mining firms: Risk taking, long and short-term incentives. Economic Modelling, 64, pp.211-220.