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Unformatted text preview: Related Party Disclosures
IAS 24 Overview of session
2. Definitions & Recognition
3 . Disclosure 2 Related Party Disclosures
Introduction Objective of IAS 24
• to ensure that an entity's financial
statements contain the disclosures
necessary to draw attention to the
possibility that its financial position and
profit or loss may have been affected by
the existence of related parties and by
transactions and outstanding balances
with such parties. 4 Scope of IAS 24
a. identifying related
transactions; party relationships and b. identifying outstanding balances between an
entity and its related parties;
c. identifying the circumstances in which disclosure
of the items in (a) and (b) is required; and
d. determining the disclosures to be made about
those items. 5 Related Party Disclosures
Definitions & Recognition Definitions
a. A person or a close member of that person’s family
is related to a reporting entity if that person:
i. has control or joint conrol over the reporting entity
ii. has significant influence over the reporting entity
iii. is a member of the key management personnel of the
reporting entity or of a parent of the reporting entity
b. An entity is related to a reporting entity if any of the
following conditions apply
i. the entity and the reporting entity are members of the same
group (meaning that each parent , subsidiary and fellow
subsidiary is related to the others)
ii. One entity is an associate or joint venture of the other entity
b. An entity is related to a reporting entity if any of the
following conditions apply ( cont’d)
iii. Both entities are joint ventures of the same third party
iv. One entity is a joint venture of a third entity and the other
entity is an associate of the third entity
v. the party is a post-employment benefit plan for the benefit
of employees of the reporting entity, or of any entity that
is a related party of the entity.
vi. The entity is controlled or jointly controlled by a person
identified in (a)
vii.A person identified in (a)(i) has significant influence over
the entity or is a member of the key management
personnel of the entity (or of a parent of the entity)
• • A related party transaction is a transfer of
services or obligations between
related parties, regardless of whether a price is
Close members of the family of an individual are
those family members who may be expected to
influence, or be influenced by, that individual in
their dealings with the entity. They may include: a. the individual's domestic partner and children;
b. children of the individual's domestic partner; and
c. dependants of the individual or the individual's
domestic partner. 9 Definitions
• Compensation includes all employee benefits.
Employee benefits are all forms of consideration
paid, payable or provided by the entity, or on behalf of
the entity, in exchange for services rendered to the
entity. It also includes such consideration paid on behalf
of a parent of the entity in respect of the entity. • Control is the power to govern the financial and
operating policies of an entity so as to obtain benefits
from its activities. 10 Definitions
• Joint control is the contractually agreed sharing of control over
an economic activity. • Key management personnel are those persons having
authority and responsibility for planning, directing and control ling
the activities of the entity, directly or indirectly, including any
director of that entity. • Significant influence is the power to participate in the financial
and operating policy decisions of an entity, but is not control
over those policies. Significant influence may be gained by
share ownership, statute or agreement. 11 Determining related
Parties Parents Subsidiaries Fellow subsidiaries Joint ventures Other entities controlled by owners or
key management Significant influence
12 Examples of related party
Sales and purchases of good and services
Balances arising as a result at the Balance
Loans, commitments and contingencies
Transactions with directors
Bank loans and collateral
Leases 13 Exclusions
Providers of finance
Government departments and agencies
Single suppliers / customers / franchises /
distributors unless a specific relationship exists
Entities with a director in common unless that
director has the ability to direct or significantly
Two venturers simply because they share joint
control over a joint venture 14 Related parties for only part of
Company A acquires 25% of Company B, regular
supplier, on 1/9/20XX for which it equity accounts.
During the year ended 31/12/20XX Company B
makes sales to A of 2,000. The total sales till
1/9/20XX were 1,100. The companies are related from 1/9/20XX and 900
should be disclosed as a related party transaction.
15 Related Party Disclosures
Disclosure Disclosures Nature of the relationships Key management personnel
compensation Amount of transactions Amount of outstanding balances 17 Related party disclosures of B?
A B C • Company A charges service fee to both Company B & C
amounting to 10 • Company B sells product to Company C amounting to 50 • Company C gives loan to Company B amounting to 20 with an
interest rate of 10% per year.
18 Related party disclosures of B?
Related company transactions as of 31.12.2007:
Company A (Parent Company) 10
Company C (other related party) 50 Financial expenses:
Company C 2
19 Related party disclosures of B?
Related company balances as of 31.12.2007: Due from related parties:
Company C (other related party) xx Due to related parties:
Company A (parent company) xx Financial liabilities:
Further notes (i.e İ
nterest rate, maturity)
20 Related party disclosures of B?
Renumeration of key management
personnel and directors xx 21 Disclosures terms and conditions of outstanding balances details of any guarantees given or received provisions for doubtful debts related to the
amount of outstanding balances the expense recognised during the period in
respect of bad or doubtful debts due from
related parties 22 Disclosures
Separately for each of the following categories:
• the parent;
• entities with joint control or significant influence
over the entity;
• joint ventures in which the entity is a venturer;
• key management personnel of the entity or its
• other related parties.
23 Question The organization chart of
A,B,C,D and E is as
follows: B A 30% Which companies does A
has to disclose in its
financials in terms of
related party transactions? B 30% 70%
C 50% E E!! D C
24 CASE STUDY#1
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial and
operating decisions. Key management personnel are
classified as related parties.
How should management disclose the sale of property by a
subsidiary to a director of the subsidiary?
- in the group’s financial statements; and
- in the subsidiary’s financial statements?
Entity X owns 70% of the share capital of its subsidiary entity
Y. Mr. Choo, who is a director of entity Y, owns the remaining
30% of the shares. Entity Y has sold a property to Mr. Choo
for 3,000. Mr. Choo is not a director of entity X.
25 CASE STUDY#2
The related parties of the reporting entity include those entiti es in
which a major shareholder of the reporting entity or key management
of the reporting entity owns a substantial interest in the voting power,
directly or indirectly. Additionally, entities with members of key
management in common are also related parties.
Should management present an entity as related party because a
director of a subsidiary is the majority shareholder of this ent ity?
A parent has a wholly owned subsidiary. One of the directors of the
subsidiary is the majority shareholder of an otherwise independent
third party entity that sells goods at arm ’s length to the subsidiary. The
director is key management of the subsidiary.
26 CASE STUDY#3
The elements of transactions necessary for an understanding of the
financial statements would normally include details of the amoun ts or
appropriate proportions of outstanding items.
How should management present transactions with entities that ar e
related parties for only part of the year?
An entity, A, is acquired as part of a business combination in February
20X7. Entity A was acquired with the intention of disposal and was sold in
November 20X7. Accordingly management have not consolidated the
results of entity A into the consolidated financial statements for the year to
31 December 20X7. Consequently, transactions between entity A and the
rest of the group are not eliminated on consolidation. Entity A is a regular
supplier to the group and during 20X7 the entity continued to supply goods
to the group.
27 QUESTIONS? ...
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This note was uploaded on 04/08/2010 for the course FEAS AD 476.01 taught by Professor Müfitbodur during the Spring '10 term at Boğaziçi University.
- Spring '10