Which transaction is considered material by nature?

Material transactions by nature often involve significant impacts on financial statements or have implications for governance and transparency. Transactions between a company and its directors or related parties are deemed material because they can influence the decisions of investors and stakeholders. These transactions may suggest potential conflicts of interest, which can raise relevant concerns about the integrity and fairness in reporting.

Related party transactions can also affect the perceived independence of management, leading to greater scrutiny in audit processes. Because they may not be conducted at arm's length, there is an inherent risk that these transactions could be structured in a way that misrepresents the financial position of the company or its performance. Consequently, they are considered material due to their qualitative characteristics, meaning they could influence the economic decisions of users of financial statements.

In contrast, small fees for routine services, non-critical expense reimbursements, and low-value marketing costs are typically seen as immaterial. These transactions often have minimal impact individually or collectively on the financial statements, which is why they don’t generally require the same level of scrutiny or disclosure as transactions involving directors or related parties.