Skip to content

NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance

While evaluating the management of a company, which of the following is the most appropriate test of the quality of related party transactions?

The key test is whether related party transactions are at arm's length and are properly approved, usually by the audit committee, and disclosed. Fair pricing and transparency show they are not diverting value to promoters. Size, foreign location or mere note disclosure alone do not prove fairness.

  1. AWhether they are large in absolute rupee value regardless of pricing
  2. BWhether they are conducted at arm's length and are approved and disclosed as requiredCorrect
  3. CWhether they involve only group companies located outside India
  4. DWhether they are recorded only in the notes to the annual report

Explanation

The key governance concern is whether related party dealings are on arm's length terms with proper approval by the audit committee and disclosure. Size alone, location or merely being in notes does not establish fairness.

Did you get it right without looking?

One question tells you little. A timed set on Company Analysis - Business and Governance shows your real accuracy, how long you take and where you lose marks.

Practise Company Analysis - Business and GovernanceFree diagnostic mock

More Company Analysis - Business and Governance questions