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+--- Thread: Arms Lenght Transaction (/showthread.php?tid=397)
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Arms Lenght Transaction - Usman Zubair - 11-08-2003
What is an arms lenght transaction! Include or exclude the list.
- jbladeus - 11-08-2003
A hooligan passes a cheap remark to a passing-by girl in the mall, the girl gives him an instant slap... this is known as an arm's length transaction! <img src=icon_smile_big.gif border=0 align=middle>
________________________
Arrrgh... it sure's gonna be mighty rough sailin' today ... mates!
- jbladeus - 11-08-2003
Just kidding
can u please describe your question in a bit more detail? What do u mean by inclusion and exclusion list?
________________________
Arrrgh... it sure's gonna be mighty rough sailin' today ... mates!
- smraza - 11-08-2003
Arms Length transaction means the transactions at normal business terms,
same question in my mind, Include or exclude the list ?????????????????
S M R
- Usman Zubair - 11-08-2003
I am talking with reference to Code of corporate governance. E.g A listed company receives management charges from an associated undertaking is it an arms lenght transaction or not.
Usman
- smraza - 11-09-2003
Dear Usman,
If a company sells cars whose price is Rs.500,000/-, and if that company sells that car to its associate at a price below Rs.500 K, then this transaction will not be called arms length trasaction,
and if it sells it at the same price which is offered to anybody else, then it will be called "Arms Length Transaction"
got that ???
S M R
- zubair - 11-09-2003
Hi
Transactions entered by related parties needs to be on commercial basis. If they are not then adjustments are needed in the Financial statements (FS). The fact also needs disclosing in the notes.
Management charges from associates and subsideries is a grey area both from the taxation and general viewpoint. Its inclusion in code of corporate goverence (though i am in the process of reading/understanding the code myself as we speak) means that tight grip is intended through the code to eradicate window dressing of FS.
Its interesting, as we need a clear understanding as to what is acceptable that would satisfy the code and also satisfy the Tax authorities (there might be an element of trade off) and you know where there is a chance of a trade off, auditors outperfrom others.
The best strategy is to adjust values to market values, but having said that I class auditors as businessman/woman first and then auditors. anything that would satisfy the authorities and serve the prupose of clients within the regulatory and legal framwork is the point of excelence as a businessman.
Thanks
zubair
- smraza - 11-09-2003
Hi zubair, now SECP is more interested about the transfer pricing, you know, in pakistan companies are now required to fill the quarterly return relating to transactions with associated companies, and from forthcoming year, auditors will be required to specifically mention in their report about the transactions with associated companies, i.e. these were arms length transactions, etc. etc.
follow this link http://http//www.secp.gov.pk/circulars/apr_21_03.htm
S M R
Edited by - smraza on Nov 09 2003 25315 PM
- zubair - 11-09-2003
Hi
Thanks SMR for the link... I am in the process of going through the material myself,,,, I believe the code wont apply unless you are listed.... say if I am a private ltd. company only... i dont need to worry about the Transfer pricing or do I? (only from the regulatory viewpoint, tax viewpoint is not a problem area at this stage) please let me know if my understanding is incorrect.
Thanks
Zubair
- smraza - 11-09-2003
Yes you are absolutely right, as COCG is the part of Listing regulations, so it is applicable to listed companies only, but if u are sitting in a group of companies, and u are looking after a pvt. co. then u should be careful if u have a listed within your group.
as far as IT authorities are concerned they sometime treat income the
'loan from assciated companies'
S M R
- jbladeus - 11-10-2003
Just read the circular. Thanks SMR for the link. Nice move by SECP.
But i should also add that this may be yet another de-motivating factor for private companies to go public. In Pakistan, the imbalance between private companies and public companies is growing larger by the day. Throughout the world, listed companies are given more incentives by the governments whereas private companies are kept under a tighter noose.
The situation is quite the opposite in our country where SECP does all the tightening and law-making for the listed companies, although i might add rightly so, because of shareholder interest etc. But that doesnt mean that private companies should roam free and do whatever they like. Private companies constitute somewhere between 60-65% of Pakistan's total corporate output and they should be regulated in a much tighter manner than what is currently being done. Just having a higher rate of tax means nothing to these ppl as we all know how these private companies cheat taxes.
________________________
Arrrgh... it sure's gonna be mighty rough sailin' today ... mates!
- CBPian - 11-10-2003
agreed with guybrush... the gap btw listed and private/nonlisted public companies is growing day-by-day.
there needs to be a balance.. i think there is a need to base regulations on turnover basis although it may be a bit controversial <img src=icon_smile_wink.gif border=0 align=middle>
- jbladeus - 11-10-2003
Throughout the world, private companies are encouraged and are given incentives to go public, but here the trend is quite the opposite. Nowadays i see companies which intend to go private from public in increasing numbers.
________________________
Arrrgh... it sure's gonna be mighty rough sailin' today ... mates!
- smraza - 11-11-2003
But one thing I'd like to mention, no matter in the world private companies get more prefrence, but if secp more tightens the listed companies, then we will be left with those listed companies which are supposed to be listed, if u look at the KSE, the figure of listed companies is more than 700 but u will find majority whose 70 to 80 percent shares are owned by the directors, and they play in their own shares and make money, and 2nd purpose the difference in tax rate, (which will not be in question after 2008).
I hope we can have the best corporate culture soon.
S M R
- CBPian - 11-12-2003
yesterday i reviewed the code of corporate goverance and plan to post my comments on some of the clauses.
i would suggest it would be a good idea if accountancy.com management can gather comments from us and send it to secp and icap as comments from accountancy community...????
some links to secp and sbp (prudential regulations) wont be a bad idea on accountancy website... apologies if its already there