广西考生：ACCA考试的科目和报考规定是什么呀？

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3 Pulp Co
(a) Identification of related parties
Related parties and associated transactions are often difficult to identify, as it can be hard to establish exactly who, or what,
are the related parties of an entity. IAS 24 Related Party Disclosures contains definitions which in theory serve to provide a
framework for identifying related parties, but deciding whether a definition is met can be complex and subjective. For example,
related party status can be obtained via significant interest, but in reality it can be difficult to establish the extent of influence
that potential related parties can actually exert over a company.
The directors may be reluctant to disclose to the auditors the existence of related parties or transactions. This is an area of
the financial statements where knowledge is largely confined to management, and the auditors often have little choice but to
rely on full disclosure by management in order to identify related parties. This is especially the case for a close family member
of those in control or having influence over the entity, whose identity can only be revealed by management.
Identification of material related party transactions
Related party transactions may not be easy to identify from the accounting systems. Where accounting systems are not
capable of separately identifying related party transactions, management need to carry out additional analysis, which if not
done makes the transactions extremely difficult for auditors to find. For example sales made to a related party will not
necessarily be differentiated from ‘normal’ sales in the accounting systems.
Related party transactions may be concealed in whole, or in part, from auditors for fraudulent purposes. A transaction may
not be motivated by normal business considerations, for example, a transaction may be recognised in order to improve the
appearance of the financial statements by ‘window dressing’. Clearly if the management is deliberately concealing the true
nature of these items it will be extremely difficult for the auditor to discover the rationale behind the transaction and to consider
the impact on the financial statements.
Finally, materiality is a difficult concept to apply to related party transactions. Once a transaction has been identified, the
auditor must consider whether it is material. However, materiality has a particular application in this situation. ISA 550
Related Parties states that the auditor should consider the effect of a related party transaction on the financial statements.
The problem is that a transaction could occur at an abnormally small, even nil, value. Determining materiality based on
monetary value is therefore irrelevant, and the auditor should instead be alert to the unusual nature of the transaction making
it material.

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(iii) Amy’s UK income tax position
Amy will remain UK resident and ordinarily resident as she is not leaving the UK permanently or for a complete tax year
under a full time contract of employment. Accordingly, she will continue to be subject to UK tax on her worldwide income
including her earnings in respect of the duties she performs for Cutlass Inc. The earnings from these duties will also be
taxable in Sharpenia as the income arises in that country.
The double tax treaty between the UK and Sharpenia will either exempt the employment income in one of the two
countries or give double tax relief for the tax paid in Sharpenia. The double tax relief will be the lower of the UK tax and
the Sharpenian tax on the income from Cutlass Inc.
Amy will not be subject to UK income tax on the expenses borne by Cutlass Inc in respect of her flights to and from
Sharpenia provided her journeys are wholly and exclusively for the purposes of performing her duties in Sharpenia.
The amounts paid by Cutlass Inc in respect of Amy’s family travelling to Sharpenia will be subject to UK income tax as
Amy will not be absent from the UK for a continuous period of at least 60 days.

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(c) Examiner’s Note:
The topic of managerial motivation and budgeting has been a subject of discussion for a number of years. There are links
here to the topics of performance measurement and responsibility accounting. Discussion should be focused on the area of
budgets and the budgeting process, as specified in the question.
Setting targets for financial performance
It has been reasonably established that managers respond better in motivation and performance terms to a clearly defined,
quantitative target than to the absence of such targets. However, budget targets must be accepted by the responsible
managers if they are to have any motivational effect. Acceptance of budget targets will depend on several factors, including
the personality of an individual manager and the quality of communication in the budgeting process.
The level of difficulty of the budget target will also influence the level of motivation and performance. Budget targets that are
seen as average or above average will increase motivation and performance up to the point where such targets are seen as
impossible to achieve. Beyond this point, personal desire to achieve a particular level of performance falls off sharply. Careful
thought must therefore go into establishing budget targets, since the best results in motivation and performance terms will
arise from the most difficult goals that individual managers are prepared to accept4.
While budget targets that are seen as too difficult will fail to motivate managers to improve their performance, the same is
true of budget targets that are seen as being too easy. When budget targets are easy, managers are likely to outperform. the
budget but will fail to reach the level of performance that might be expected in the absence of a budget.
One consequence of the need for demanding or difficult budget targets is the frequent reporting of adverse variances. It is
important that these are not used to lay blame in the budgetary control process, since they have a motivational (or planning)
origin rather than an operational origin. Managerial reward systems may need to reward almost achieving, rather than
achieving, budget targets if managers are to be encouraged by receiving financial incentives.
Participation in the budget-setting process
A ‘top-down’ approach to budget setting leads to budgets that are imposed on managers. Where managers within an
organisation are believed to behave in a way that is consistent with McGregor’s Theory X perspective, imposed budgets may
improve performance, since accepting the budget is consistent with reduced responsibility and avoiding work.
It is also possible that acceptance of imposed budgets by managers who are responsible for their implementation and
achievement is diminished because they feel they have not been able to influence budget targets. Such a view is consistent
with McGregor’s Theory Y perspective, which holds that managers naturally seek responsibility and do not need to be tightly
controlled. According to this view, managers respond well to participation in the budget-setting process, since being able to
influence the budget targets for which they will be responsible encourages their acceptance. A participative approach to
budget-setting is also referred to as a ‘bottom-up’ approach.
In practice, many organisations adopt a budget-setting process that contains elements of both approaches, with senior
management providing strategic leadership of the budget-setting process and other management tiers providing input in terms
of identifying what is practical and offering detailed knowledge of their area of the organisation.