Accounting Online Program Certification Practice Test

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According to IAS 24, which relationship constitutes a related party?

No common shareholdings between Albert plc and James plc
Hector Ltd being a related party of Frances Ltd
Common directors between Gambit plc and Frodsham Ltd
Control of Jasper plc by Giprock Ltd while exerting influence over Kendal plc

The correct answer is: Control of Jasper plc by Giprock Ltd while exerting influence over Kendal plc

The definition of a related party according to IAS 24 encompasses entities or individuals that have the ability to influence or control another entity, or are under common control. In this context, control implies having the power to govern the financial and operating policies of an enterprise to obtain benefits from its activities. When considering the relationship where Jasper plc is controlled by Giprock Ltd and Giprock Ltd also exerts influence over Kendal plc, this situation clearly fits the definition of related parties as outlined in IAS 24. Giprock Ltd's control over Jasper plc displays a direct relationship, while its influence over Kendal plc illustrates a linked relationship of significant power and influence, both of which qualify as related party relationships under the standard. The other scenarios do not establish a related party relationship as per the provisions of IAS 24. The absence of common shareholdings between two companies doesn't imply a related party. Similarly, while having common directors may suggest a potential relationship, it is the degree of influence or control that solidifies that relationship under IAS 24, rather than just sharing governance.