Related Party & Segmental reporting Flashcards
IAS 24 Related party Disclosures - Intro, objective, disclosures, who are related parties
Ethical angle to non disclosure
Transactions with related parties are normal, however for completeness Users of fin statements must be made aware.
An entity may enter into transactions on different terms from those to an unrelated party.
Objective of the standard is to ensure that necessary disclosures relating to its financial position and profit and loss may have been affected due to existence of related parties and outstanding balances with such parties.
Disclosure needs to include
1. Nature of relationship
2. Nature of transaction
3. monetary amount
4. Year end balances
5. Amounts written off
related parties
1. other members of group
2. key mgt - persons with authority for directing and controlling activities of the business and their spouses
3. shareholders with over 20% ownership
Why are they related
1. Control - Parent and sub are always related, transactions must be
disclosed in individual F.S not group.
2. significant influence
3. common control
IFRS 8 - Segmental reporting- intro, reportable segment, thresholds, 75% rule, problems
It helps users understand large business conglomerates
Segmental reporting is based on management information
A reportable segment is a component of a entity that engages in business activities from which it earns revenues and incurs expenses. the results are also regularly by the chief operating decision maker
A REPORTABLE SEGMENT can be based on geography, products, lines of business.
An entity must separately report info about an operating segment that meets any of the quantitative thresholds
- 10% of revenue
- 10% of profit or loss
- 10% of assets
At least 75% of entity’s external revenue should be included in reportable segments
Disclosures per segment
1. Revenue (split between internal and external)
2. profit or loss
3. Total Assets
4. Total Liabilities
Problem areas
1. Directors define segments, could be subjective
2. Not comparable with competitors
3. Reconciliation can be hard to understand
