01. Ethics And The Accountant

Question 1

Under what circumstances is an individual or his or her close family member a related party under IAS 24?

Answer 1

A person or a close member of that person’s family is related to a reporting entity if that person:

1. Has control or joint control of the reporting entity.
2. Has significant influence over the reporting entity.
   Or
3. Is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

Question 2

Under what circumstances is an entity a related party under IAS 24?

Answer 2

An entity is related to a reporting entity if any one of the following conditions apply:

1. The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
2. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
3. Both entities are joint ventures of the same third party.
4. One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
5. The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employees are also related to the reporting entity.
6. The entity is controlled or jointly controlled by an individual identified as a related party.
7. A person having control or joint control of the reporting entity has significant influence over the entity or is a member of the key management personnel of the entity (or parent of the entity).
8. The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.

Question 3

Who is a close family member?

Answer 3

A family member who may be expected to influence or be influenced by that person in their dealings with the entity and include:

• the person’s children and spouse/domestic partner.
• children of that person’s spouse/domestic partner.
• dependents of that person or their spouse/domestic partner.

Question 4

What is a subsidiary? Joint venture? Associate?

Answer 4

Subsidiary - An entity over which an investor has control.

Joint venture - an entity over which an investor has joint control.

Associate - an entity over which the investor has significant influence.

Associates include their subsidiaries and joint ventures include their subsidiaries.

Question 5

What is the difference between control, joint control, significant influence and key management personnel?

Answer 5

1. Control (IFRS 10) - >50% ownership.
2. Joint control (IFRS 11) - shared control and decisions require unanimous consent of parties sharing control.
3. Significant influence (IAS 28) - power to participate in but not control financial and operating policy decisions of an entity. Usually assumed at 20% - 50% ownership.
4. Key management personnel (IAS 24) - those with authority and responsibility for planning, directing and controlling the activities of the entity, including any director (executive or NED) of that entity.

Question 6

Give some examples of transactions that must be disclosed if made with a related party.

Answer 6

1. Purchases and sales of goods, PPE and other assets.
2. Rendering/receiving of services.
3. Leases
4. Transfers of R&D.
5. Transfers under licence agreements.
6. Transfers under finance arrangements.
7. Provision of guarantees or collateral.
8. Commitments to do something if a particular event does or does not occur.
9. Settlement if liabilities on behalf of the entity or by the entity on behalf of the related party.

Question 7

What are the disclosure requirements under IAS 24? Particularly as it relates to parent and key management personnel.

Answer 7

Relationships between parents and subs must always be disclosed even if no transactions occur between them. Name of parent and ultimate beneficial controlling party, if any, must be disclosed.

Compensation to key management personnel for each of the following headings:
- short term employee benefits
- post-employment benefits
- other long-term benefits
- termination benefits
- share-based payment

Question 8

What are the disclosure requirements under IAS 24? Particularly as it relates to transactions, outstanding balances and commitments.

Answer 8

Disclosure of transactions between related parties is required, along with any outstanding balances and commitments.

At minimum disclosures should include:

1. The nature of the related party relationship. (Disclosures are made separately for each classification of related parties ie parent, subsidiaries, KMP, associates, JVs, parties with joint control or significant influence and other).
2. A description of the transactions.
3. The amounts of the transactions.
4. The amounts and details of outstanding balances.
5. Allowances for doubtful debts.
6. The irrecoverable debt expense in respect of outstanding balances.

Entity can only disclose that RP trans were made in market terms if that fact can be substantiated.

Question 9

When is a related party exempt from related party disclosures? What are the disclosure requirements if this exemption is applied?

Answer 9

A reporting entity is exempt from disclosure requirements in relation to related party transactions and outstanding balances with:

• a government which has control, joint control or significant influence over the reporting entity.
  Or
• another entity which is a related party because the same govt has control, joint control or significant influence over both the reporting entity and the other entity.

If this exemption is applied, the entity must disclose:
- name of the govt and the nature of its relationship with the reporting entity.

• details of individually significant transactions.
• a qualitative or quantitative indication of the extent of other transactions that are significant in aggregate.