In this graph it is possible to see both the relations in the group as well as the relations of the group with the external markets. These relationships aren't, however, always clearly portrayed. If, for example, one is analyzing just the consolidated financial statement of the group, all the intragroup balances, transactions, income, and expenses will be eliminated in full, as provided for by IAS 27. For this reason, it is only possible to examine the transactions between e.g. the Holding "Alpha" and the Sub Holding "Beta", if one analyzes the separate financial statements of these two firms.
Hi Agnese, what do you mean with your last sentence.. "For this reason, it is only possible to examine the transactions between e.g. the Holding Alpha and the Sub Holding Beta, if one analyzes the separate financial statements of these two firms."? I'm not sure I catched the point: if I examine the financial statement of holding alpha, I should be able to see both transaction with beta and gamma, not only the ones with beta, am I wrong?
Gian Marco the point is that in the consolidated financial statement, the one made by the holding for all the group, the intra-group transactions are not shown, according to IFRS. On the other hand in the separated financial statement we (should) find the transactions of the company with all the other companies, thus including also the transactions with the companies belonging to the same group.
Yes, is true. We can find the transaction between company C and company D only in the financial statements of each subheading group. In the consolidated financial statements the assets, liabilities, equity, income, expenses and cash flows of the parent (company) and its subsidiaries are presented as those of a single economic entity.
I totally agree. Only looking at the subconsolidated financial statements presented by the two subholding companies (Beta and Gamma) we can find the party related transactions between C and D. On the contrary, if we look at the consolidated financial statement presented by the holding company Alfa we cannot find these kind of transactions since all the intragroup transactions are ignored.
I agree with you guys, the transactions between company C and Company D are traceable in the subconsolidated financial statement presented by the two subholding companies.
Totally agree with you ladies ang gentlemen.The transactions between company C and Company D can be found in the subconsolidated financial statement presented by the two subholding companies.
We can find the possible transactions between company C and company D by looking the financial statements of each subheading group. While, if we would look at the consolidated financial statement presented by the holding company Alfa we would not be able to find those transactions because they will be ignored.
We can find these transactions only in the subconsolidated of sub H beta or Sub H gamma. We can find the financial statement of C or D only if they are listed company.
Totally agree with you guys. The transaction between C and D can be found in the consolidate financial statement of the sub-holdings Beta and Gamma, while it is difficult to find the information in the two separate financial statements of C and D because they do not have the duty to write this kind of information if they are not listed.
I agree with you, the transaction between the company C and D can be found in the subconsolidated financial statement of the subholding Beta and Gamma.
I agree with Morgan is impossible to find the related party transaction in the consolidated financial statement also in the sub-holding consolidate financial statement. The only way is to look at the single financial statement of the single firm C and D.
It is possible to find them only in the consolidated financial statements of the sub holdings companies Beta and Gamma. So we will look at the one of Beta for company C, and the one of Gamma for company D. However, these transactions will not be available in the consolidated financial statement of the Holding Alfa.
I totally agree with you guys as you can see the transactions between company C and D are listed in the sub-consolidated financial statement presented by the two sub-holding companies Beta and Gamma.
As many of the guys already stated, we need: both subs consolidated financial statements or separate financial statements if the sub holdings are listed. This because, in fact, law does not command to disclose transactions in separate fin. statements unless, the two company are listed, for sake of transparency.
Replying to Federica, I think in the consolidated financial statement you can find all the transactions between C and D; Replying to Saverio, if the companies are listed, you should find these infos also in the separate financial statement
@Saverio. I think that I could find transactions between C and D if they are listed companies. In this way, maybe it is possible to find these transactions in their separate financial statement.
I agree with you guys, we can find possible transactions within companies C and D only in the subconsolidated financial statements of the two subgroups (being two different subgroups) and in the separated financial statements of companies C and D
No we cannot find these kind of transactions. We can find the transactions between A and B only looking at the separate financial statements of the above mentioned companies.
I agree with Giulia too. We cannot find the transactions among these subsidiaries if we look only at the consolidated financial statement of the companies.
However if you want find the transactions between A and B, you have to look at the FS of the Sub Beta where you can also find all the transactions with the rest of the parties of the group.
No, in the consolidate financial statement you can only find the relationship between the Group and external parties. If you are looking for the transaction occurred between subsidiaries you have to read the separate financial statement of the subsidiaries. In most of cases, the problem is that they are not listed and you cannot find out the financial statement on internet.
Absolutely agree with you guys! Transaction between firm A and firm B cannot be noticed by the consolidated financial statement because we don't find transaction between the related parties. So, we need separate financial statement.
We cannot find them in the consolidated fin. statement of sub holding Beta because it doesn't consider transactions within the group, but only looking at the fin. statement of the 2 listed firms.
To find the transaction between A and B we must look at the separated financial statement of the subsidiaries. As the other my colleagues said in the consolidated financial statement is impossible to find the related party transaction between A and B.
No, it is not possible to find them in the consolidated financial statement. Since these are transactions between subsidiaries, we can find them only in the separate financial statements of those subsidiaries; unfortunately, if they are not listed, they do not publish them on internet!
We can find the transactions between A and B just in the separate financial statements of the company A and of the company B! The consolidated financial statement does not contain these informations.
Unfortunately not, as you may already know, in consolidated fin. stat. intragroup transactions are ignored.. unless they go public and must disclose this information about transactions.
We cannot find information about intragroup transactions within each consolidated financial statement (they are erased). Nonetheless, external rpts can be easily traced if we suppose that A or B were out of the group.
No because it is not possible to find these infos in the consolidated financial statement because transactions among subsidiaries can only be found in the separate financial statement of the subsidiaries
No it's important to remind that the consolidated financial statement does not disclose any related partiy transactions between the subsidiaries of the holding company. We can find these infos only in the separate financial statement of the two companies A and B
No,we cannot find transactions between A and B in the consolidated financial statement,since intragroups transactions here are eliminated. We can find them in the separate financial statements of A and B.
we will not be able to find this kind of transactions because the holding isn't obliged to show them and the consolidated will show only transactions with the external environment. if you want to analyze them you have to check each financial statement of subsidiares
How do we perceive transactions between subsidiaries and external parties which are controlled by people involved with the holding company's ultimate controlling party (example: buying from a supplier that is controlled by Alfa's ultimate controlling party's wife)? Are these transactions more or less risky than internal transactions?
In my opinion, the RPTs with related parties external to the group are more risky that the ones with related parties internal to the group. The reason is that the former transactions cannot for sure be justified according to the business group perspective whereas the others could be justified because of the presence of a compensatory advantage for the subsidiaries. For example the transaction with a subsidiary may be essential to reach the "system effect".
YEs I agree with Giulia. The external transactions are more risky than internal transactions since they are not justified by the business group perspective , they regard third parties external to the group.
I agree with Giulia too. I think that the external transactions are riskier because they may be done without following the interest of the company or the entire group (so without a business group perspective).
I agree with Giulia too. Transactions made with related parties external to the group are more riskier than the internal transactions since they can't never be justified by the business group perspective. Since external parties don't belong with the group, they will not receive a compensatory advantage for the damage of a detrimental transaction.
I totally agree with Giulia, the RPTs with related parties external to the group are more risky that the ones with related parties internal to the group. The reason is that the former transactions cannot for sure be justified according to the business group perspective whereas the others could be justified because of the presence of a compensatory advantage for the subsidiaries.
Generally, we can perceive them as more risky compared with internal transactions within the group. As Silvia said, the main reason lies on the fact that there could be situations in which the interests of these transactions may be not aligned and coincident with the ones of the whole group!
In this case the RTP should be considered much more risky for the simple reason that the controlling party might be able to divert resources. Morover, as Giulia says, this kind of transactions are exempted from the Business Group Perspective.
If the transactions are in favour of one party or another, with the other one appearently having no advantage from this transactions, off course could be the case of tunneling, Michele's right! We should say also that this particular kind of actions are not observable through the lens of a business group perspective, while still commentable using both the contingency and the conflict of interests ones.
RPTs with external parties are more risky compared to the ones with internal related parties because, as you guys stated, it can be the case in which the transactions cannot be aligned with the business group perspective
These kind of external transactions are riskier than internal transactions, because they may be not aligned with the interest of the business group. While internal transactions may have the compensatory advantage ( benefits received fot belonging to the group).
I totally agree guys. While using a conflict of interest perspective we can consider both types of transaction risky, using the business groups perspective we could justify the intra-groups transactions in the case that they result in some advantage for the whole group. So using this perspective the transactions with external party are far more risky, but if we want to state whether they are really detrimental for some stakeholder we should look deeper at the motivations of the transactions.
Related party transaction with internal members isn't as risky as related party transaction with external members, because with the internal ones there is an advantage to the whole firm, unlike the external ones.
i agree. if as said in class, the supplier is owned by a member of the family of the controlling party it will be be more riskier respect to a transaction that could happen inside the group, because this one could be justify in several ways.
Totally agree with Giulia. Furthermore, (following the example made by Luigi) buying from a supplier that is controlled by Alfa's ultimate controlling party's wife, may be a way to extract private benefits form the business group.
I agree with you Gian Marco, since in this case the transaction could be a way to move assets from a firm when the ultimate controlling party has few cash flows right to a firm where he posses more.
They are the transactions between the firm with: - A person or a close member of that person's family who has control power or significant influence over the reporting entity or a parent of the reporting entity. - The entities are controlled by the people mentioned above
For example any time the parties involved in the transaction are controlled by the same ultimate controlling party even if they do not belong to the same business group or when a company is controlled by a close family member of the ultimate controlling party of the other one.
I agree with Giulia. An external transaction indeed can be considered a related one when the it is between a member of a group and an external actor that has a relationship with the holding of the group.
An external transaction can be referred as a related one in a situation in which an actor which is external to the group, as for example a supplier, is controlled by an ultimate controlling party who is related to the direction of the holding company's top. The prevously used example of the controlling party's wife who sells to a controlled company is quite explicatory.
I think the definitions were correct and precise.We can consider parties as related when they have the same ultimate controlling party, or anyway related controlling parties. That's why we have to analyze them carefully, because in this cases the risk of expropriation of private benefits, with the practice of tunneling, is very high!
If the two businesses are intertwined, they are related even if might not be visible for an outsider. It means that if two firms, who have the same ultimate controlling entity do transactions with one another, they are external transaction but at the same time, they are related, even if they do not come from the same business group or field.
related party transactions in general refers to the special relationship inherent between the involved parties creates potential conflicts of interest which can result in actions which benefit the people involved as opposed to the shareholder, are external if are not involving people or firms inside the group.
If the parties involved in the transaction are controlled by the same ultimate controlling party also if they do not belong to the same group we can speak about a related transaction.
The external transaction can be called related when there is the link between the contracting parties. It can be , for example, the Director of the company, who has also a position in the other firm, participating in the transaction. In this case physical persons can extract the personal interest from the transaction.
In this situation we expected to have: -9 financial statements (one for each company) -1 consolidated financial statements ( made by Holding Alfa ) -2 subconsolidated financial statements ( made by each subholding)
I agree with Federica Brunetti,there are at least 12 finance reports - 9 financial statements (one for each company) - 1 consolidated financial statements ( made by Holding Alfa ) - 2 subconsolidated financial statements ( made by each subholding)
We can expect the following documents: first of all, 1 consolidated financial statement made by the Holding company, then 2 consolidated financial statements for what concern the Sub holding companies, and finally, a total of 9 financial statements for each company. However, it is important to keep in mind that if the subsidiaries are not listed, probably they do not publish them on internet.
I agree. A financial statement for each legal entity (9); one consolidated financial statement prepared by the holding considering the entire groUp and finally two subconsolidated financial statements.
We can find 9 separated financial statements, one consolidated financial statements (about the whole group) and 2 sub consolidated financial statement (about the subholdings)
good point Francesco.It is important to remind that if "A,B,C,D, E, F" are not listed they don't publish their separate financial statement. But in general, looking at the legal entities we can distinguish: 9 financial statement ( one for each legal entity). 1 consolidated financial statement wich represent the entire group. 2 sub consolidated financial statement.
i Agree with the ones that we can expect (actually we can pretend) to find 9 separated financial statements and one consolidated financial statement made by the holding company. Possibly we could also find sub-consolidated financial statements made by the two sub-holdings, but i'm not sure they're mandatory, what do you think guys?
I agree with all of you in saying that we can find 1 consolidated financial statement made by the parent company,9 separated financial statements and 2 sub consolidated financial statements.
Yes we have at least 9 separate financial statements at least 1 consolidated financial statement. The consolidated financial statemen must be 3 if the sub-holdings are listed companies.
I'm completely agree with you guys. There are at least 12 finance reports: 9 financial statements, 1 consolidated financial statements, 2 subconsolidated financial statements.
we have 9 financial statements( for each firm of the group), 2 sub holding statements called sub consolidated ones and one consolidated of the overall group
There is usually 1 consolidated financial statement for the company in general. And particulary in this case we have also 2 sub-consolidated financial statements for BETA and GAMMA and 6 separate financial statements accordinally for A B C D E F.
Talking about the graph at slide 49, since Mondadori and Mediaset are not directed by Fininvest, does it mean that Fininvest doesn't need to do a consolidated financial statement?
Pardon: I missed the reply button. I do not think so. The consolidated financial statement has to be done for the mere control, the fact that the direction differs does not change anything in regard of the consolidated financial statement.
I agree with Federico. Furthermore, since Mondadori and Mediaset declare to be not directed by Fininvest, can we use a business group perspective to analyze their mutual transactions or not?
I agree with Federico, for the preparation of the consolidated financial statement it’s enough the control of a firm and in the case of Mondadori and Mediaset, there is control.
In my opinion, since Mondadori and Mediaset are not directed by Fininvest then the direction differs does not change anything in regard of the consolidated financial statement.
Absolutely not, even though they are not directed, Mondadori and Mediaset are under Fininvest control and so they are part of the group. Direction declaration by subsidiaries only refers about the ability to plan, implement and control their strategy by themselves. Indeed, it consist in a guarantee of independence for what concern the decision making process.
In response to Giovanni's question, no in this case in a situation of transactions between the two companies we wouldn't be able to apply a business group perspective.
According to me, Fininvest needs a consolidated financial statement. In order to have consolidated financial statement, as we said in class, it's enough the control, not the direction.
I do not think so. The consolidated financial statement has to be done for the mere control, the fact that the direction differs does not change anything in regard of the consolidated financial statement.
If they want to have an overview of is going on in their holding they need to do a consolidate financial statements, it would be very strange if it might miss
Yes, they will have to show a consolidated financial statement, I agree here. It has to be clear that there is an overall overview and that the control is stated.
Yes Michele. Here we have 9 financial statements and at least 1 consolidated financial statement. Forthermore, we can have also 2 sub-consolidated financial statements.
I think there are at least 12 financial statements (9 financial statements, 1 consolidated financial statements, 2 subconsolidated financial statements)
We can expect the following documents: first of all, 1 consolidated financial statement made by the Holding company, then 2 consolidated financial statements for what concern the Sub holding companies, and finally, a total of 9 financial statements for each company. However, it is important to keep in mind that if the subsidiaries are not listed, probably they do not publish them on internet.
Of course there are a total of 9 financial statements, comprehending the consolidated fin. statement of the Holding Company, the two consollidated fin. statements of Sub-Holdings and the rest are referring to each company.
At least : 9 financial statements (one for each company in the group) 2 subconsolidated financial statement prepared by the subholdings 1 consolidated financial statement prepared by the holding
as I mentioned before, there should be: 9 financial statements (one for each group), 1 consolidated financial statement for the holding and 2 sub consolidated financial statements for the subholdings
We have at least 9 separate financial statements, at least 1 consolidated financial statement. The consolidated financial statemen must be 3 if the sub-holdings are listed companies.
12 finance reports: 9 financial statements (one for each company), 1 consolidated financial statements ( made by Holding Alfa ), 2 subconsolidated financial statements ( made by each subholding).
There is usually 1 consolidated financial statement for the company in general. And particularly in this case we have also 2 sub-consolidated financial statements for BETA and GAMMA and 6 separate financial statements accordinally for A B C D E F. What is more, the ALFA BETA and GAMMA also should have separate financial statements. So the final quantity is 12.
Guys, looking at the external market, why transactions with related parties external to the group are more dangerous than those with unrelated parties?
I believe that the external related party transactions are the most dangerous since we can analyze them only under the conflict of interest perspective, so they will never be justified using the business group perspective.
I agree with Federica, when we looking at the external market, transactions with related parties external to the group are more dangerous than those with unrelated parties because since we can analyze them only under the conflict of interest perspective, so they will never be justified using the business group perspective.
You are right! For example, if two companies belonging to the same group are involved in a transaction that damages one of them, such a transaction could be justified by the "system effect" achieved by the entire group. Conversely, if the companies are unrelated the same transaction cannot be justified using this motivation.
Transactions with external unrelated parties are normal transactions conduced by the firm in its normal business conduction. On the other hand, transaction with related external parties are more likely to be done in the personal interest of the controlling party rather than in the interest of the firm, because of the relationship with the controlling party of the external actor.
The transactions with external related parties are more dangerous than those with unrelated parties, as a conflict of interest might arise, leading to a situation where each party strives to reach its own goal instead of finding a consensus with the other party. Thus, they cannot use the business group perspective.
Generally the external RPTs are considered to be riskiest because of the conflict of interest. Those transactions may not be guided for the real interest of the company.
I believe that the external related party transactions are the most dangerous because we can analize them only under the conflict of interest perspective.
The transactions with external related parties are more dangerous than those with unrelated parties, because the company can suffer from them in case if somebody will use these transactions to gain a personal interest and revenue. In order to extract this personal benefits the director or other employee of the company can do even those transactions, that are not needed at all.
Federica is right. The only way to see such transactions is looking at the saparate fanancial statements of beta and C. In the consolidated financial statement of alfa and in the subconsolidated financial statement of beta they are ignored.
I think you are right both. Consolidated financial statement of Alfa does not consider transactions between C and Beta, so we have to look surely in the separated financial statements of considered firms (in this case Beta and C).
I agree with my colleagues: in order to verify transactions among the two we can only rely on the respective financial statements and not on the consolidated fin. statement of Alfa.
The problem is that if C is not a listed company it would be complex to find its financial statement, I would start from Beta if it is a public company.
Indeed, a separate statement needs to be opened in order to see the transactions between those two parties. Still, we have to consider the issues of listed and unlisted companies, as Marco mentioned before, as this would rise complications.
If C is a captive company that means that all its business is made within the group. That means that it's suppliers and it's customers are companies belonging to the business group.
The fact the C is a captive company intrinsecally implies transactions with other companies in the group. Here what is important is whether this transactions are fear or not. In case they arent, according to the business group's view we should find other benefits for C from belonging to the group. This benefits should make up for the initial disadvantage.
In this case sub Gamma would't be a sub-holding. We would have 9 separate financial statements, and 2 consolidated financial statements (sub H Beta and Holding Alfa).
In this graph it is possible to see both the relations in the group as well as the relations of the group with the external markets. These relationships aren't, however, always clearly portrayed. If, for example, one is analyzing just the consolidated financial statement of the group, all the intragroup balances, transactions, income, and expenses will be eliminated in full, as provided for by IAS 27. For this reason, it is only possible to examine the transactions between e.g. the Holding "Alpha" and the Sub Holding "Beta", if one analyzes the separate financial statements of these two firms.
ReplyDeleteHi Agnese, what do you mean with your last sentence.. "For this reason, it is only possible to examine the transactions between e.g. the Holding Alpha and the Sub Holding Beta, if one analyzes the separate financial statements of these two firms."? I'm not sure I catched the point: if I examine the financial statement of holding alpha, I should be able to see both transaction with beta and gamma, not only the ones with beta, am I wrong?
DeleteGian Marco the point is that in the consolidated financial statement, the one made by the holding for all the group, the intra-group transactions are not shown, according to IFRS. On the other hand in the separated financial statement we (should) find the transactions of the company with all the other companies, thus including also the transactions with the companies belonging to the same group.
DeleteIn which financial statement we can find the transactions between company C and company D?
ReplyDeletewe will be able to find information about these transactions only in the consolidated financial statements of each subholding groups beta and gamma.
DeleteYes, is true. We can find the transaction between company C and company D only in the financial statements of each subheading group. In the consolidated financial statements the assets, liabilities, equity, income, expenses and cash flows of the parent (company) and its subsidiaries are presented as those of a single economic entity.
DeleteI totally agree. Only looking at the subconsolidated financial statements presented by the two subholding companies (Beta and Gamma) we can find the party related transactions between C and D. On the contrary, if we look at the consolidated financial statement presented by the holding company Alfa we cannot find these kind of transactions since all the intragroup transactions are ignored.
DeleteI agree with you guys, the transactions between company C and Company D are traceable in the subconsolidated financial statement presented by the two subholding companies.
Deleteyes, we could find out the information looking at the consolidate financial statement of the sub "H" beta and gamma.
DeleteTotally agree with you ladies ang gentlemen.The transactions between company C and Company D can be found in the subconsolidated financial statement presented by the two subholding companies.
DeleteFor sure we can find them in the consolidated financial statement of two subholding companies.
DeleteBut I was wondering can we find those transactions also in the separate financial statement of C and D?
DeleteWe can find the possible transactions between company C and company D by looking the financial statements of each subheading group. While, if we would look at the consolidated financial statement presented by the holding company Alfa we would not be able to find those transactions because they will be ignored.
DeleteWe can find these transactions only in the subconsolidated of sub H beta or Sub H gamma. We can find the financial statement of C or D only if they are listed company.
DeleteTotally agree with you guys. The transaction between C and D can be found in the consolidate financial statement of the sub-holdings Beta and Gamma, while it is difficult to find the information in the two separate financial statements of C and D because they do not have the duty to write this kind of information if they are not listed.
Delete@saverio: we can find those transactions also in the separate financial statement of C and D only if C and D are listed
DeleteI agree with you, the transaction between the company C and D can be found in the subconsolidated financial statement of the subholding Beta and Gamma.
DeleteI agree with Morgan is impossible to find the related party transaction in the consolidated financial statement also in the sub-holding consolidate financial statement. The only way is to look at the single financial statement of the single firm C and D.
DeleteAs other collegues said, I believe we can find those transactions only looking at the subconsolidated financial statements of Beta and Gamma
Deleteyes, I think we can find the transactions between company C and company D through consolidated financial
DeleteIt is possible to find them only in the consolidated financial statements of the sub holdings companies Beta and Gamma. So we will look at the one of Beta for company C, and the one of Gamma for company D. However, these transactions will not be available in the consolidated financial statement of the Holding Alfa.
DeleteI totally agree with you guys as you can see the transactions between company C and D are listed in the sub-consolidated financial statement presented by the two sub-holding companies Beta and Gamma.
DeleteAs many of the guys already stated, we need: both subs consolidated financial statements or separate financial statements if the sub holdings are listed. This because, in fact, law does not command to disclose transactions in separate fin. statements unless, the two company are listed, for sake of transparency.
DeleteReplying to Federica, I think in the consolidated financial statement you can find all the transactions between C and D;
DeleteReplying to Saverio, if the companies are listed, you should find these infos also in the separate financial statement
I perfectly agree with you guysAbout the listed company
DeleteWe can find transactions between C and D in the consolidated financial statement of both Sub Holding companies Gamma and Beta
Delete@Saverio. I think that I could find transactions between C and D if they are listed companies. In this way, maybe it is possible to find these transactions in their separate financial statement.
DeleteI agree with you guys, we can find possible transactions within companies C and D only in the subconsolidated financial statements of the two subgroups (being two different subgroups) and in the separated financial statements of companies C and D
DeleteI agree too,we can find the transactions between C and D just in the consolidated financial statements of the subholding companies Gamma and Beta
DeleteI totally agree with you guys, just in the consolidated financial statements.
DeleteSuch transactions are found in consolidated financial statements.
DeleteYeap, I totally agree , we can find in financial statements
DeleteThe transaction between C and D can be found in the consolidate financial statement of the sub-holdings Beta and Gamma
DeleteThey could be found in both the consolidated financial statements of the Sub groups Beta and Gamma ,as the transaction is made between them.
DeleteDo we find transactions between A and B in the consolidated financial statement?
ReplyDeleteI think we can find these information in the consolidated financial statement of the subheading Beta.
DeleteNo we cannot find these kind of transactions. We can find the transactions between A and B only looking at the separate financial statements of the above mentioned companies.
DeleteYes, I totally agree with Giulia. The consolidate financial statements does not consider the transaction within the group.
DeleteI agree with Giulia too. We cannot find the transactions among these subsidiaries if we look only at the consolidated financial statement of the companies.
DeleteNope. It must be kept in mind that the consolidated financial statement does not disclose any RPT among the subsidiaries of the holding company.
DeleteHowever if you want find the transactions between A and B, you have to look at the FS of the Sub Beta where you can also find all the transactions with the rest of the parties of the group.
DeleteNo, in the consolidate financial statement you can only find the relationship between the Group and external parties. If you are looking for the transaction occurred between subsidiaries you have to read the separate financial statement of the subsidiaries. In most of cases, the problem is that they are not listed and you cannot find out the financial statement on internet.
DeleteTransactions between A and B can be found only looking at the separate financial statements of those companies.
DeleteAbsolutely agree with you guys! Transaction between firm A and firm B cannot be noticed by the consolidated financial statement because we don't find transaction between the related parties. So, we need separate financial statement.
DeleteWe cannot find them in the consolidated fin. statement of sub holding Beta because it doesn't consider transactions within the group, but only looking at the fin. statement of the 2 listed firms.
DeleteNo, since the transactions between subsidiaries can't be reported in the consolidated financial statement of a group.
DeleteTo find the transaction between A and B we must look at the separated financial statement of the subsidiaries. As the other my colleagues said in the consolidated financial statement is impossible to find the related party transaction between A and B.
Deletewe can find the transactions between A and B only in the consolidated financial statement of the SubHolding Beta
DeleteYes, I think there is transaction between A and B in the consolidated financial statement
DeleteNo, it is not possible to find them in the consolidated financial statement. Since these are transactions between subsidiaries, we can find them only in the separate financial statements of those subsidiaries; unfortunately, if they are not listed, they do not publish them on internet!
DeleteWe can find the transactions between A and B just in the separate financial statements of the company A and of the company B! The consolidated financial statement does not contain these informations.
DeleteUnfortunately not, as you may already know, in consolidated fin. stat. intragroup transactions are ignored.. unless they go public and must disclose this information about transactions.
DeleteWe cannot find information about intragroup transactions within each consolidated financial statement (they are erased). Nonetheless, external rpts can be easily traced if we suppose that A or B were out of the group.
DeleteNo because it is not possible to find these infos in the consolidated financial statement because transactions among subsidiaries can only be found in the separate financial statement of the subsidiaries
DeleteNo it's important to remind that the consolidated financial statement does not disclose any related partiy transactions between the subsidiaries of the holding company.
DeleteWe can find these infos only in the separate financial statement of the two companies A and B
No,we cannot find transactions between A and B in the consolidated financial statement,since intragroups transactions here are eliminated. We can find them in the separate financial statements of A and B.
DeleteNo only in the separate financial statements, because the consolidated financial statement eliminates such information.
Deletewe will not be able to find this kind of transactions because the holding isn't obliged to show them and the consolidated will show only transactions with the external environment. if you want to analyze them you have to check each financial statement of subsidiares
DeleteWe can find the transactions between A and B only looking at the separate financial statements of the companies.
DeleteHow do we perceive transactions between subsidiaries and external parties which are controlled by people involved with the holding company's ultimate controlling party (example: buying from a supplier that is controlled by Alfa's ultimate controlling party's wife)?
ReplyDeleteAre these transactions more or less risky than internal transactions?
In my opinion, the RPTs with related parties external to the group are more risky that the ones with related parties internal to the group. The reason is that the former transactions cannot for sure be justified according to the business group perspective whereas the others could be justified because of the presence of a compensatory advantage for the subsidiaries. For example the transaction with a subsidiary may be essential to reach the "system effect".
DeleteYEs I agree with Giulia. The external transactions are more risky than internal transactions since they are not justified by the business group perspective , they regard third parties external to the group.
DeleteI agree with Giulia too. I think that the external transactions are riskier because they may be done without following the interest of the company or the entire group (so without a business group perspective).
DeleteI agree with Giulia too. Transactions made with related parties external to the group are more riskier than the internal transactions since they can't never be justified by the business group perspective. Since external parties don't belong with the group, they will not receive a compensatory advantage for the damage of a detrimental transaction.
DeleteI totally agree with Giulia, the RPTs with related parties external to the group are more risky that the ones with related parties internal to the group. The reason is that the former transactions cannot for sure be justified according to the business group perspective whereas the others could be justified because of the presence of a compensatory advantage for the subsidiaries.
DeleteGenerally, we can perceive them as more risky compared with internal transactions within the group. As Silvia said, the main reason lies on the fact that there could be situations in which the interests of these transactions may be not aligned and coincident with the ones of the whole group!
DeleteIn this case the RTP should be considered much more risky for the simple reason that the controlling party might be able to divert resources. Morover, as Giulia says, this kind of transactions are exempted from the Business Group Perspective.
DeleteI think this is a case of tunnelling
DeleteIf the transactions are in favour of one party or another, with the other one appearently having no advantage from this transactions, off course could be the case of tunneling, Michele's right! We should say also that this particular kind of actions are not observable through the lens of a business group perspective, while still commentable using both the contingency and the conflict of interests ones.
DeleteRPTs with external parties are more risky compared to the ones with internal related parties because, as you guys stated, it can be the case in which the transactions cannot be aligned with the business group perspective
DeleteThese kind of external transactions are riskier than internal transactions, because they may be not aligned with the interest of the business group. While internal transactions may have the compensatory advantage ( benefits received fot belonging to the group).
DeleteI totally agree guys. While using a conflict of interest perspective we can consider both types of transaction risky, using the business groups perspective we could justify the intra-groups transactions in the case that they result in some advantage for the whole group. So using this perspective the transactions with external party are far more risky, but if we want to state whether they are really detrimental for some stakeholder we should look deeper at the motivations of the transactions.
DeleteRelated party transaction with internal members isn't as risky as related party transaction with external members, because with the internal ones there is an advantage to the whole firm, unlike the external ones.
Deletei agree. if as said in class, the supplier is owned by a member of the family of the controlling party it will be be more riskier respect to a transaction that could happen inside the group, because this one could be justify in several ways.
DeleteTotally agree with Giulia. Furthermore, (following the example made by Luigi) buying from a supplier that is controlled by Alfa's ultimate controlling party's wife, may be a way to extract private benefits form the business group.
ReplyDeleteIt would be a sort of tunneling practiced by the wife, in this case.. isn't it?
DeleteI agree with you Gian Marco, since in this case the transaction could be a way to move assets from a firm when the ultimate controlling party has few cash flows right to a firm where he posses more.
DeleteI agree with you Gian. It could be a tunneling practice to move money from the firm to wife's pockets.
DeleteWhen an external transaction can be considered a Related one?
ReplyDeleteThey are the transactions between the firm with:
Delete- A person or a close member of that person's family who has control power or significant influence over the reporting entity or a parent of the reporting entity.
- The entities are controlled by the people mentioned above
For example any time the parties involved in the transaction are controlled by the same ultimate controlling party even if they do not belong to the same business group or when a company is controlled by a close family member of the ultimate controlling party of the other one.
DeleteGood question, I agree with Giulia. I would add that risky transactions are the ones with external related parties.
DeleteI agree with you, Giulia and Morgan
DeleteI agree with Giulia. An external transaction indeed can be considered a related one when the it is between a member of a group and an external actor that has a relationship with the holding of the group.
DeleteAgree with Giulia, there is a related transaction, when there is some sort of relationship between external actor and the internal one
DeleteAll the parties that are under the same controlling party are related
DeleteTotally agree with the small but correct definition of Michele. The parties are said to be related when they have the same ultimate controlling party.
DeleteIn my view, an external transaction can be considered a Related one when all the parties that are under the same controlling party are related
DeleteI agree especially with Michele and Nardi, we can consider as related party every party that have the same ultimate controlling party.
DeleteThanks Nguyen for the clear definition!
DeleteAn external transaction can be referred as a related one in a situation in which an actor which is external to the group, as for example a supplier, is controlled by an ultimate controlling party who is related to the direction of the holding company's top. The prevously used example of the controlling party's wife who sells to a controlled company is quite explicatory.
Deletegood question Federica! I agree with Giulia.
DeleteI think the definitions were correct and precise.We can consider parties as related when they have the same ultimate controlling party, or anyway related controlling parties. That's why we have to analyze them carefully, because in this cases the risk of expropriation of private benefits, with the practice of tunneling, is very high!
DeleteIf the two businesses are intertwined, they are related even if might not be visible for an outsider.
DeleteIt means that if two firms, who have the same ultimate controlling entity do transactions with one another, they are external transaction but at the same time, they are related, even if they do not come from the same business group or field.
related party transactions in general refers to the special relationship inherent between the involved parties creates potential conflicts of interest which can result in actions which benefit the people involved as opposed to the shareholder, are external if are not involving people or firms inside the group.
DeleteIf the parties involved in the transaction are controlled by the same ultimate controlling party also if they do not belong to the same group we can speak about a related transaction.
DeleteThe external transaction can be called related when there is the link between the contracting parties. It can be , for example, the Director of the company, who has also a position in the other firm, participating in the transaction. In this case physical persons can extract the personal interest from the transaction.
DeleteThis comment has been removed by the author.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteGuys, how many types and number of financial statement should we expect in this situation?
ReplyDeleteIn this situation we have 9 financial statements, one for each company, Sir.
DeleteIn this situation we expected to have:
Delete-9 financial statements (one for each company)
-1 consolidated financial statements ( made by Holding Alfa )
-2 subconsolidated financial statements ( made by each subholding)
Morgan, here we have nine financial stastements and at least 1 consolidated financial statement.
Delete6 plus 3 because also the 3 holdings have to do it
DeleteThis comment has been removed by the author.
DeleteI agree with Federica Brunetti,there are at least 12 finance reports
Delete- 9 financial statements (one for each company)
- 1 consolidated financial statements ( made by Holding Alfa )
- 2 subconsolidated financial statements ( made by each subholding)
We can expect the following documents: first of all, 1 consolidated financial statement made by the Holding company, then 2 consolidated financial statements for what concern the Sub holding companies, and finally, a total of 9 financial statements for each company. However, it is important to keep in mind that if the subsidiaries are not listed, probably they do not publish them on internet.
DeleteI agree. A financial statement for each legal entity (9); one consolidated financial statement prepared by the holding considering the entire groUp and finally two subconsolidated financial statements.
DeleteWe can find 9 separated financial statements, one consolidated financial statements (about the whole group) and 2 sub consolidated financial statement (about the subholdings)
Deletewell 9 financial statements, 1 consolidated financial statement (holding) and 2 sub consolidated financial statements (subholdings)
Deletegood point Francesco.It is important to remind that if "A,B,C,D, E, F" are not listed they don't publish their separate financial statement.
DeleteBut in general, looking at the legal entities we can distinguish:
9 financial statement ( one for each legal entity).
1 consolidated financial statement wich represent the entire group.
2 sub consolidated financial statement.
i Agree with the ones that we can expect (actually we can pretend) to find 9 separated financial statements and one consolidated financial statement made by the holding company. Possibly we could also find sub-consolidated financial statements made by the two sub-holdings, but i'm not sure they're mandatory, what do you think guys?
DeleteI agree with all of you in saying that we can find 1 consolidated financial statement made by the parent company,9 separated financial statements and 2 sub consolidated financial statements.
DeleteWe have 9 separate financial statements, 1 consolidated financial statements, and 2 subconsolidated financial statements.
DeleteYes we have at least 9 separate financial statements at least 1 consolidated financial statement. The consolidated financial statemen must be 3 if the sub-holdings are listed companies.
DeleteI'm completely agree with you guys. There are at least 12 finance reports: 9 financial statements, 1 consolidated financial statements, 2 subconsolidated financial statements.
Deletewe have 9 financial statements( for each firm of the group), 2 sub holding statements called sub consolidated ones and one consolidated of the overall group
DeleteWe have 9 financial statements, 1 consolitated financial statement and 2 subconsolitated financial statement
DeleteThere is usually 1 consolidated financial statement for the company in general. And particulary in this case we have also 2 sub-consolidated financial statements for BETA and GAMMA and 6 separate financial statements accordinally for A B C D E F.
DeleteTalking about the graph at slide 49, since Mondadori and Mediaset are not directed by Fininvest, does it mean that Fininvest doesn't need to do a consolidated financial statement?
ReplyDeletePardon: I missed the reply button.
DeleteI do not think so. The consolidated financial statement has to be done for the mere control, the fact that the direction differs does not change anything in regard of the consolidated financial statement.
Reply
I agree with Federico. Furthermore, since Mondadori and Mediaset declare to be not directed by Fininvest, can we use a business group perspective to analyze their mutual transactions or not?
DeleteSurely, Fininvest must make the consolidated financial statement. "Control" is a sufficient condition for making it.
DeleteI agree with Federico, for the preparation of the consolidated financial statement it’s enough the control of a firm and in the case of Mondadori and Mediaset, there is control.
DeleteAs said before, consolidated financial statement is a must
DeleteLuigi, since there is control, Fininvest is required to make the consolidated financial statemement
DeleteIn my opinion, since Mondadori and Mediaset are not directed by Fininvest then the direction differs does not change anything in regard of the consolidated financial statement.
DeleteA subsidiary is consolidated by the controlling party, it doesn't matter if it decides to delegate the direction to the subsidiary
DeleteAbsolutely not, even though they are not directed, Mondadori and Mediaset are under Fininvest control and so they are part of the group. Direction declaration by subsidiaries only refers about the ability to plan, implement and control their strategy by themselves. Indeed, it consist in a guarantee of independence for what concern the decision making process.
DeleteIn response to Giovanni's question, no in this case in a situation of transactions between the two companies we wouldn't be able to apply a business group perspective.
DeleteAccording to me, Fininvest needs a consolidated financial statement. In order to have consolidated financial statement, as we said in class, it's enough the control, not the direction.
DeletePerfectly agree with you Giulia.
DeleteI do not think so. The consolidated financial statement has to be done for the mere control, the fact that the direction differs does not change anything in regard of the consolidated financial statement.
ReplyDeleteI totally agree with you, I think Fininvest is obliged to do a consolidated financial statement
DeleteIf they want to have an overview of is going on in their holding they need to do a consolidate financial statements, it would be very strange if it might miss
Deletecompletely agree! having control is enough
Deleteyes I think Fininvest has to do the consolidated financial statement because it has the control which is enough
Deleteagree with you, Pierpaolo.
DeleteYes, they will have to show a consolidated financial statement, I agree here. It has to be clear that there is an overall overview and that the control is stated.
DeleteHow many financial statements there could be on the base of this picture?
ReplyDeleteHere we have 9 financial stastements and at least 1 consolidated financial statement.
DeleteYes Michele. Here we have 9 financial statements and at least 1 consolidated financial statement. Forthermore, we can have also 2 sub-consolidated financial statements.
DeleteI think there are at least 12 financial statements (9 financial statements, 1 consolidated financial statements, 2 subconsolidated financial statements)
DeleteWe can expect the following documents: first of all, 1 consolidated financial statement made by the Holding company, then 2 consolidated financial statements for what concern the Sub holding companies, and finally, a total of 9 financial statements for each company. However, it is important to keep in mind that if the subsidiaries are not listed, probably they do not publish them on internet.
DeleteOf course there are a total of 9 financial statements, comprehending the consolidated fin. statement of the Holding Company, the two consollidated fin. statements of Sub-Holdings and the rest are referring to each company.
DeleteI agree with you. we could have 12 financial statement
DeleteAt least :
Delete9 financial statements (one for each company in the group)
2 subconsolidated financial statement prepared by the subholdings
1 consolidated financial statement prepared by the holding
as I mentioned before, there should be: 9 financial statements (one for each group), 1 consolidated financial statement for the holding and 2 sub consolidated financial statements for the subholdings
DeleteYou can find all the other possible answers in the same question of Morgan Giulio Minetti.
DeleteWe have at least 9 separate financial statements, at least 1 consolidated financial statement. The consolidated financial statemen must be 3 if the sub-holdings are listed companies.
DeleteI come to the same conclusion:
Delete1 consolidated financial statements
2 subconsolidated financial statements
9 financial statements
12 finance reports: 9 financial statements (one for each company), 1 consolidated financial statements ( made by Holding Alfa ), 2 subconsolidated financial statements ( made by each subholding).
DeleteThere is usually 1 consolidated financial statement for the company in general. And particularly in this case we have also 2 sub-consolidated financial statements for BETA and GAMMA and 6 separate financial statements accordinally for A B C D E F. What is more, the ALFA BETA and GAMMA also should have separate financial statements. So the final quantity is 12.
DeleteGuys, looking at the external market, why transactions with related parties external to the group are more dangerous than those with unrelated parties?
ReplyDeleteI believe that the external related party transactions are the most dangerous since we can analyze them only under the conflict of interest perspective, so they will never be justified using the business group perspective.
DeleteI agree with Federica, when we looking at the external market, transactions with related parties external to the group are more dangerous than those with unrelated parties because since we can analyze them only under the conflict of interest perspective, so they will never be justified using the business group perspective.
DeleteYou are right! For example, if two companies belonging to the same group are involved in a transaction that damages one of them, such a transaction could be justified by the "system effect" achieved by the entire group. Conversely, if the companies are unrelated the same transaction cannot be justified using this motivation.
DeleteI agree with you girls. It's like if we don't have the bright side of looking at a transaction from a business perspective.
DeleteTransactions with external unrelated parties are normal transactions conduced by the firm in its normal business conduction. On the other hand, transaction with related external parties are more likely to be done in the personal interest of the controlling party rather than in the interest of the firm, because of the relationship with the controlling party of the external actor.
DeleteIt is a matter of conflict of interest. In external rpts it may appear quite often.
DeleteBecause related external parties may be controlled indirectly by the unltimate controlling party as a mean of expropriation of minority shareholders.
DeleteThe transactions with external related parties are more dangerous than those with unrelated parties, as a conflict of interest might arise, leading to a situation where each party strives to reach its own goal instead of finding a consensus with the other party. Thus, they cannot use the business group perspective.
DeleteGenerally the external RPTs are considered to be riskiest because of the conflict of interest. Those transactions may not be guided for the real interest of the company.
DeleteI believe that the external related party transactions are the most dangerous because we can analize them only under the conflict of interest perspective.
DeleteThe transactions with external related parties are more dangerous than those with unrelated parties, because the company can suffer from them in case if somebody will use these transactions to gain a personal interest and revenue. In order to extract this personal benefits the director or other employee of the company can do even those transactions, that are not needed at all.
DeleteWhich financial statement should be opened in order to see the transactions between C and Beta?
ReplyDeleteI think that in order to see these transactions we must open the separate financial statement of Beta or the financial statement of C.
DeleteFederica is right. The only way to see such transactions is looking at the saparate fanancial statements of beta and C. In the consolidated financial statement of alfa and in the subconsolidated financial statement of beta they are ignored.
DeleteI think you are right both. Consolidated financial statement of Alfa does not consider transactions between C and Beta, so we have to look surely in the separated financial statements of considered firms (in this case Beta and C).
DeleteExactly guys, you got it!!
DeleteI agree with my colleagues: in order to verify transactions among the two we can only rely on the respective financial statements and not on the consolidated fin. statement of Alfa.
DeleteI think we must open the separate financial statement of Beta or the financial statement of C in order to see these transactions
DeleteThe problem is that if C is not a listed company it would be complex to find its financial statement, I would start from Beta if it is a public company.
DeleteIndeed, a separate statement needs to be opened in order to see the transactions between those two parties.
DeleteStill, we have to consider the issues of listed and unlisted companies, as Marco mentioned before, as this would rise complications.
You have to look at the saparate fanancial statements of Beta and C
DeleteWhat happen if subsidiary C is a "captive" unit? Can it have transactions with subsidiary E? What would be its role within the group?
ReplyDeleteIf C is a captive company that means that all its business is made within the group. That means that it's suppliers and it's customers are companies belonging to the business group.
DeleteThe fact the C is a captive company intrinsecally implies transactions with other companies in the group. Here what is important is whether this transactions are fear or not. In case they arent, according to the business group's view we should find other benefits for C from belonging to the group. This benefits should make up for the initial disadvantage.
DeleteHii guys, if D, E, F belong to Sub H "Beta" then How many financial statements in this case?
ReplyDeleteIn this case sub Gamma would't be a sub-holding. We would have 9 separate financial statements, and 2 consolidated financial statements (sub H Beta and Holding Alfa).
DeleteYes, I agree, different from the overall situation above, we would 'only' need:
Delete2 consolidated statements and
9 separate financial statements
Of course, we could have 9 separate financial statements and 2 consolidated statement.
Delete9 separeted financial statements
Delete2 consolitated financial statements