01-16-2012, 02:44 PM
Mr. Businessman is the Chairman of “Empire Business Group (EBG)” – a large industrial and financial conglomerate of an Asian Country. This group was founded in early 40’s.
According to a recent report issued by the group, EBG comprised of 25 companies with assets worth Rs 15,860 millions by the end of year 2010 with the plan of establishing 5 new units in the coming 3 years. The group with a well diversified investment structure is enjoying a significant existence in Cement, Sugar, Textile, Insurance, Power, Aviation, and Financial sectors in the country.
Mr. Businessman's rise started in late 80’s, when he purchased Hypothetical Financial Bank Limited (HFBL) - ranked among the country’s 5 strongest banks. HFBL is now one of the most professionally lead Business entity in the country with net assets base of over Rs.150 billion, and enjoying deposits base over Rs. 325 billion. This has ranked EBG among the top five business families in the country. Mr. Businessman has significantly come a long way… and no doubt, EBG is still growing.
Among other factors responsible for such prestige, is the group’s truly high class modern, innovative and flexible Information and Financial Reporting System (IFRS) which ensures input of strictly & truly verified data and output of error-free information. This is the reason that every financial information disseminated by the group is respected in the outer world.
These days, the group’s one export oriented textile unit named High Textile Mills Limited (HTML) is planning to install a hi-tech plant of finest quality to increase its current production by 250% with the 0.95 efficiency level. This plan needs an investment of Rs. 1,250 million. The group has planned to raise Rs. 250 million of this amount through the public issue and the balance from HFBL as a loan for a period of 7 years on quarterly installment basis.
The bank is under the chairmanship of Mr. Businessman who is also working as CEO of the textile company. In this case there is no problem in getting loan for the company. But Chief Financial Officer (CFO) of HFBL has raised his concern that this dual relationship of Mr. Chairman as the chairman can influence the bank’s Board of Directors to issue loan on soft terms. Moreover, being related party, both HFBL and HTML has to issue their annual reports to the shareholders of the concerned entities and this deal is a big concern for these reports as significant information.
Requirement:
As a student of accounting, you are required to give your opinion on the CFO’s concern while considering the provisions (relevant to this deal) of IAS - 24 on “Related Party Disclosures” applicable to HFBL’s Annual Report 2011?
According to a recent report issued by the group, EBG comprised of 25 companies with assets worth Rs 15,860 millions by the end of year 2010 with the plan of establishing 5 new units in the coming 3 years. The group with a well diversified investment structure is enjoying a significant existence in Cement, Sugar, Textile, Insurance, Power, Aviation, and Financial sectors in the country.
Mr. Businessman's rise started in late 80’s, when he purchased Hypothetical Financial Bank Limited (HFBL) - ranked among the country’s 5 strongest banks. HFBL is now one of the most professionally lead Business entity in the country with net assets base of over Rs.150 billion, and enjoying deposits base over Rs. 325 billion. This has ranked EBG among the top five business families in the country. Mr. Businessman has significantly come a long way… and no doubt, EBG is still growing.
Among other factors responsible for such prestige, is the group’s truly high class modern, innovative and flexible Information and Financial Reporting System (IFRS) which ensures input of strictly & truly verified data and output of error-free information. This is the reason that every financial information disseminated by the group is respected in the outer world.
These days, the group’s one export oriented textile unit named High Textile Mills Limited (HTML) is planning to install a hi-tech plant of finest quality to increase its current production by 250% with the 0.95 efficiency level. This plan needs an investment of Rs. 1,250 million. The group has planned to raise Rs. 250 million of this amount through the public issue and the balance from HFBL as a loan for a period of 7 years on quarterly installment basis.
The bank is under the chairmanship of Mr. Businessman who is also working as CEO of the textile company. In this case there is no problem in getting loan for the company. But Chief Financial Officer (CFO) of HFBL has raised his concern that this dual relationship of Mr. Chairman as the chairman can influence the bank’s Board of Directors to issue loan on soft terms. Moreover, being related party, both HFBL and HTML has to issue their annual reports to the shareholders of the concerned entities and this deal is a big concern for these reports as significant information.
Requirement:
As a student of accounting, you are required to give your opinion on the CFO’s concern while considering the provisions (relevant to this deal) of IAS - 24 on “Related Party Disclosures” applicable to HFBL’s Annual Report 2011?
mileys81: