IAS 24 Related Party Disclosures
Background
IAS 24 Related Party Disclosures outlines the requirement for
disclosures of related parties for transactions and outstanding balances,
including commitments, with such parties. It enables users to analysis the impact
on financial statements result of transactions with related party.
IAS 24 was reissued in November 2009 and applicable to
annual period start on or after 1 January 2011.
Objective
The objective of this Standard is 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, including commitments, with such parties.
Scope
- This Standard shall be applied in:
(a) identifying related party relationships and
transactions;
(b) identifying outstanding balances, including
commitments, 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.
- This Standard requires disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent or investors with joint control of, or significant influence over, an investee presented in accordance with IFRS 10 Consolidated Financial Statements or IAS 27 Separate Financial Statements. This Standard also applies to individual financial statements.
- Related party transactions and outstanding balances with other entities in a group are disclosed in an entity’s financial statements. Intragroup related party transactions and outstanding balances are eliminated, except for those between an investment entity and its subsidiaries measured at fair value through profit or loss, in the preparation of consolidated financial statements of the group.
Key definitions
Related party transaction
A related party transaction is a transfer of resources,
services or obligations between a reporting entity and a related party,
regardless of whether a price is charged.
Close members of the family
A person are those family members who may be expected to
influence, or be influenced by, that person in their dealings with the entity
and include:
(a) that person’s children and spouse or domestic partner;
(b) children of that person’s spouse or domestic partner;
and
(c) dependents of that person or that person’s spouse or
domestic partner.
Key management personnel
Those persons having authority and responsibility for
planning, directing and controlling the activities of the entity, directly or
indirectly, including any director (whether executive or otherwise) of that
entity.
Government
Refers to government, government agencies and similar
bodies whether local, national or international.
Government‑related
entity
A government‑related
entity is an entity that is controlled, jointly controlled or significantly
influenced by a government
Who are related parties?
The following terms are used in this Standard with the
meanings specified:
A related party is a person or entity that is related to
the entity that is preparing its financial statements (in this Standard
referred to as the ‘reporting entity’).
(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 control of the reporting entity;
(ii) has significant influence over the reporting entity;
or
(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 applies:
(i) 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).
(ii) 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).
(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 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 employers are also related to the reporting 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).
(viii) 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.
Purpose of related party disclosures
- · Related
party relationships are a normal feature of commerce and business. For example,
entities frequently carry on parts of their activities through subsidiaries,
joint ventures and associates. In those circumstances, the entity has the
ability to affect the financial and operating policies of the investee through
the presence of control, joint control or significant influence.
- · A
related party relationship could have an effect on the profit or loss and financial
position of an entity. Related parties may enter into transactions that unrelated
parties would not. For example, an entity that sells goods to its parent at
cost might not sell on those terms to another customer. Also, transactions
between related parties may not be made at the same amounts as between
unrelated parties.
- · For
these reasons, knowledge of an entity’s transactions, outstanding balances,
including commitments, and relationships with related parties may affect
assessments of its operations by users of financial statements, including assessments
of the risks and opportunities facing the entity
Disclosures
All entities
- Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been transactions between them. An entity shall disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.
- An entity shall disclose key management personnel compensation in total and for each of the following categories:
(a) short‑term
employee benefits;
(b) post‑employment
benefits;
(c) other long‑term
benefits;
(d) termination benefits; and
(e) share‑based
payment.
- If an entity obtains key management personnel services from another entity (the ‘management entity’), the entity is not required to apply the requirements in paragraph 17 to the compensation paid or payable by the management entity to the management entity’s employees or directors.
- If an entity has had related party transactions during the periods covered by the financial statements, it shall disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements. These disclosure requirements are in addition to those in paragraph 17. At a minimum, disclosures shall include:
(a) the amount of the transactions;
(b) the amount of outstanding balances, including
commitments, and:
(i) their terms and conditions, including whether they are secured,
and the nature of the consideration to be provided in settlement; and
(ii) details of any guarantees given or received;
(c) provisions for doubtful debts related to the amount of
outstanding balances; and
(d) the expense recognised during the period in respect of
bad or doubtful debts due from related parties.
- Amounts incurred by the entity for the provision of key management personnel services that are provided by a separate management entity shall be disclosed.
- The disclosures required by paragraph 18 shall be made separately for each of the following categories:
(a) the parent;
(b) entities with joint control of, or significant
influence over, the entity;
(c) subsidiaries;
(d) associates;
(e) joint ventures in which the entity is a joint venturer;
(f) key management personnel of the entity or its parent;
and
(g) other related parties.
- Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity.
Government‑related
entities:
- A reporting entity is exempt from the disclosure requirements of paragraph 18 in relation to related party transactions and outstanding balances, including commitments, with:
(a) a government that has control or joint control of, or
significant influence over, the reporting entity; and
(b) another entity that is a related party because the same
government has control or joint control of, or significant influence over, both
the reporting entity and the other entity.
- If a reporting entity applies the exemption in paragraph 25, it shall disclose the following about the transactions and related outstanding balances referred to in paragraph 25:
(a) the name of the government and the nature of its
relationship with the reporting entity (ie control, joint control or
significant influence);
(b) the following information in sufficient detail to
enable users of the entity’s financial statements to understand the effect of
related party transactions on its financial statements:
(i) the nature and amount of each individually significant transaction;
and
(ii) for other transactions that are collectively, but not individually,
significant, a qualitative or quantitative indication of their extent. Types of
transactions include those listed in paragraph 21.
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