IAS 24 - Related Party Disclosures

Question 0

What are the related parties for a person?

Answer 0

PERSON : -

1) A person or close member of that person’s family is related to a reporting entity if that person:
a) has control or joint control over the reporting entity
b) has significant influence over the reporting entity
c) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity

Question 1

What is the definition of a related party?

Answer 1

A person or entity that is related to the entity preparing its financial statements

Question 2

What are the related parties for an entity?

Answer 2

ENTITY : -

1) If the entity and the reporting entity are members of the same group
2) One entity is an associate or joint venture of the other entity
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 controlled or jointly controlled by a related person.
6) A related person has significant influence over the entity or is a member of the key management personnel of the entity or a parent of the entity.

Question 3

What is the definition of a close family member under IAS 24?

Answer 3

Those family member who may be expected to influence the person in the dealings with the entity. They include : -

1) The persons children and spouse (or domestic partner)
2) Children of the persons spouse (or domestic partner)
3) Dependants of that person or of that persons spouse (or domestic partner)

Question 4

What is the definition of control under IAS 24?

Answer 4

The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities

Question 5

What is the definition of joint control under IAS 24?

Answer 5

The contractually agreed sharing of control over an economic activity

Question 6

What is the definition of Key Management Personnel under IAS 24?

Answer 6

Those persons having authority and responsibility for planning, directing and controlling the activities of the entity directly or indirectly - this includes a director (whether executive or otherwise)

Question 7

What is the definition of Significant Influence under IAS 24?

Answer 7

The power to participate in the financial and operating policy decisions of an entity, but not to control those policies. Significant Influence may be gained by share ownership.

Question 8

Name examples which DO NOT fall into the criteria of related parties : -

Answer 8

1) Two entities simple because they have a director or other member of key personnel in common
2) Two venturers simply because they share joint control over a joint venture
3) The government, providers of finance or trade unions
4) A large customer or supplier

Question 9

When does a disclosure have to be made under IAS 24?

Answer 9

A disclosure is triggered by the identification of a related party relationship.

Question 10

What is the definition of a related party transaction?

Answer 10

A transfer of resources, services or obligations between a reporting entity and a related party, regardless or whether a price is charged.

Question 11

What are the different types of transactions?

Answer 11

1) Zero price - Transfer of resources for which no charge is made
2) Artificial price - Transfer of resources for which an artificial charge is made. i.e where under instruction from the parent, sales between group companies are at above or below, open market prices.
3) At arms length - Transfer of resources made at full, open market prices.

Question 12

What disclosures are required under IAS 24?

Answer 12

1) Disclosure is ALWAYS required of the related party relationship between a parent and a subsidiary irrespective of whether there have been any transactions between the entities
2) Disclosure is ALWAYS required of the compensation received by key management personnel such as salary, pensions, redundancy pay and share options
3) Disclosures required of any related party transactions during the period

Question 13

What details need to be disclosed in a related party transaction?

Answer 13

1) The nature of the relationship
2) The amount of the transactions
3) The amount of any balance outstanding in the year
4) The terms & conditions attaching to any outstanding balance
5) Details of any guarantees given or received
6) Any provision for doubtful debts relating to the outstanding balance.

NOTE : ALTHOUGH INFORMATION IS REQUIRED ABOUT THE NATURE OF RELATED PARTIES, THERE IS NO REQUIREMENT TO IDENTIFY THEM BY NAME

Question 14

What are the judgments required in IAS 24?

Answer 14

1) The application of the definition of a related party can be subjective.
2) Transactions may be difficult to identify with zero price transfers
3) Directors and Key Management may be sensitive to the disclosure

Question 15

What are the comparisons of IAS 24 and FRS 8 under UK GAAP?

Answer 15

UNDER FRS 8 : -
A parent is not required to provide related party disclosures in its own financial statements where the results are shown in the consolidated financial statements

UNDER IAS 24 : -
No such exemption exists

UNDER FRS 8 : -
Wholly owned subsidiaries do not have to disclose transactions with entities that are part of the same group provided the consolidated financial statements are publicly available.

UNDER IAS 24 : -
No such exemption exists

UNDER FRS 8 : -
Only material related party transactions must be disclosed. Materiality must be judged not only in terms of significance to the reporting entity but also in relation to the related party where that party is a director, key management personnel, close family member of a director or key management personnel or an entity controlled by the above mentioned.

UNDER IAS 24 : -
No requirement to judge materiality in relation to the other party.