IAS 24 - related party transactions

Question 1

What does IAS 24 require disclosure of?

Answer 1

Significant relationships with other parties they do business with e.g. family members

Disclosing the impact of related parties, any material transactions that take place and impact on the performance and overall profitability

Question 2

Why are IAS 24 disclosure requirements necessary?

Answer 2

Because by using a relationship it might not result in the most profitable course of action for the business. I.e. a cafe owner might use his sister to supply coffee beans but therefore miss out on better prices from his sisters competitors

Ensure business decisions are made in the best interest of the business as a whole

Question 3

What is a related party?

Answer 3

A party that has control or ability to exercise significant influence over an entity e.g. through a personal relationship

Question 4

What is a related party transaction?

Answer 4

A transfer of resources or obligations between related parties

Question 5

What parties are usually deemed as related to an entity?

Answer 5

Business’s key mgmt e.g. Directors (who might be directors of other company’s too)

Close family of key mgmt members

Shareholders with >20% control e.g. parents subsidiaries, associates and JVs

Question 6

What is included under unrelated parties under IAS 24?

Answer 6

Entities with common directors / mgmt - it is the directors themselves, not the entity

Two joint venturers - Not by virtue of joint control

Finance providers

Trade union

Public utilities

Government departments

Customer / suppliers

Question 7

What must a business disclose under IAS 24?

Answer 7

Disclose the nature of the related party relationship, transaction information and any outstanding balances

Question 8

What does disclosing the nature of a related party involve under IAS 24?

Answer 8

Info about how closely the parties are related so users can analyse and assess whether transactions are made with company’s best interests in mind

Question 9

What does disclosing the transaction information involve under IAS 24?

Answer 9

Dates, times, people involves and transaction conditions

Question 10

What does disclosing the outstanding balances involve under IAS 24?

Answer 10

If in existence, must be disclosed

Question 11

What are the minimum requirements under IAS 24?

Answer 11

Transaction amounts
Provision for doubtful debts
Amount of outstanding balances
Expenses recognised

Key management compensation - short term benefits, post employment benefits (pensions), long term benefits, terminations benefits, share-based payments