[Anonymous]

“It will generally not be possible to substantiate representations that the transaction was consummated on terms equivalent to those that would have prevailed in an arm’s-length transaction.”

Please can someone explain it to me like I’m a 2-year old. What’s an arm’s-length transaction in relation to RPT?

Thanks!

[n.ACMA]

this line is taken from the chapter on related parties. An arms length transaction is the one which is done in the normal course of business such as sales or purchase to a normal customer, whereas transaction which is not done in the normal course of business indicates the possibility of related parties, such as sales or purchases on terms quite favorable to what is offered to normal customers. One of the audit procedure to find out related parties transaction is to look for non-recurring and out of the ordinary transactions. Related parties disclosure is a GAAP requirement. If the client doesn't disclose related parties transactions, the auditor can qualify or issue an adverse opinion, depending on the significance.

[MCLKT]

You can't guess what an arm's length transaction would have been and try to compare to a related party transaction.

So, you can't state that a related party transaction is “equivalent” to a transaction that would qualify as arm's length.

Hope this helps!

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[Author]

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