![]() Related article Financial Management: Overview and Role and Responsibilities These related parties might involve people being in relationships, or in some other manner that might give them a reason to act in other’s person’s interest as opposed to their own self-interest. The main reason when this occurs when there are Related Parties involved. In the normal course of business, it is important to have independence when it comes to business transactions that might possibly favor one party at the expense of the other. How to assess if Transactions are conducted at an Arm’s Length? Therefore, by that premise, both the parties are supposed to have equal information relating to the deal. The main rationale behind this is to ensure that there is no form of collusion between either of the parties. ![]() ![]() These types involve companies to act in their personal self-interest, as compared to transactions that are favoring the other party, because of an inherent pressure from one of the party. In literal terms, arm’s lengths transactions can be defined as business deals that involve buyers and sellers to act independently with no influence on each other, whatsoever. Therefore, transactions are supposed to be considered at an arm’s length, for the greater good, for the professionalism, and for the parties involved. In this regard, an arm’s length transaction is a concept that is used by accountants in order to ascertain the existing viability of the transaction. During the accounting year, it is very important to ensure that transactions are carried out, in a proper manner, which is permitted by law and play out in the favor of the parties involved.
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