IAS 24 | Related Party Disclosures

1

Objective

The objective is to ensure financial statements contain necessary disclosures to highlight how related party relationships, transactions, and outstanding balances might affect financial position and profit or loss.

2

Scope

This Standard applies to identifying related party relationships and transactions, identifying outstanding balances (including commitments), determining when disclosure is required, and determining the disclosures to be made.

3

Applicability

Disclosures are required in consolidated and separate financial statements of a parent or investor with joint control/significant influence (under IFRS 10 or IAS 27), and in individual financial statements.

4

Intragroup Elimination

Related party transactions and balances with other group entities are disclosed in an entity's financial statements. However, intragroup items are eliminated in consolidated financial statements (except for investment entities measured at fair value).

5

Normal Feature

Related party relationships are a normal feature of commerce (e.g., subsidiaries, joint ventures). Entities can affect the policies of investees through control, joint control, or significant influence.

6

Effect on Financials

Relationships can affect profit or loss and financial position. Related parties may transact when unrelated parties would not (e.g., selling at cost to a parent), or on different terms.

7

Influence without Transactions

Relationships can affect an entity even without transactions. The mere existence of a relationship may alter dealings with third parties (e.g., a subsidiary terminating a relationship with a trading partner acquired by its parent).

8

Risk Assessment

Knowledge of related party transactions and relationships is essential for users to assess an entity's operations, risks, and opportunities.

9

Definitions

The following terms are used in this Standard with the meanings specified:

• Related party: A person or entity that is related to the entity that is preparing its financial statements.
• Person: A person or a close member of that person's family is related if that person: (i) has control/joint control; (ii) has significant influence; or (iii) is a member of key management personnel.
• Entity: An entity is related if: (i) it is in the same group; (ii) it is an associate/joint venture; (iii) both are joint ventures of the same third party; (iv) one is a JV and the other an associate of a third party; (v) it is a post-employment benefit plan; (vi) it is controlled by a related person; (vii) a related person has significant influence or is KMP; (viii) it provides KMP services.
• Related party transaction: A transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.
• Close family members: Those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity (children, spouse, dependants).
• Compensation: Includes all employee benefits (short-term, post-employment, other long-term, termination, share-based payment).
• Key management personnel (KMP): Persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly (including directors).
• Government-related entity: An entity that is controlled, jointly controlled or significantly influenced by a government.

10

Substance over Form

Attention is directed to the substance of the relationship, not merely the legal form.

11

Not Related Parties

The following are not related parties: (a) two entities simply because they share a director or key manager (unless other conditions met); (b) two joint venturers simply because they share joint control; (c) providers of finance, trade unions, public utilities, and government departments/agencies that do not control/influence the entity; (d) a customer, supplier, franchisor, distributor, or agent with whom an entity transacts significant volume, simply by virtue of economic dependence.

13

Parent Disclosure

Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been transactions between them. The name of the parent and ultimate controlling party must be disclosed (and the next most senior parent if those do not produce public accounts).

14

View of Effects

Disclosing relationships where control exists is appropriate to enable users to form a view about the effects of related party relationships, regardless of transactions.

16

Next Senior Parent

Refers to the first parent in the group above the immediate parent that produces consolidated financial statements available for public use.

17

KMP Compensation

Key management personnel (KMP) compensation must be disclosed in total and for each category: short-term benefits, post-employment benefits, other long-term benefits, termination benefits, and share-based payment.

17A

Management Entity

If KMP services are obtained from another entity (management entity), the reporting entity does not disclose compensation paid by the management entity to its own employees, but discloses amounts incurred for the provision of KMP services (per para 18A).

18

Transaction Disclosure

If related party transactions occurred, the entity discloses the nature of the relationship, amount of transactions, and outstanding balances (including commitments). At a minimum: amount of transactions, amount of balances (with terms, conditions, security, nature of consideration), guarantees, doubtful debt provisions, and bad debt expense.

18A

Management Fees

Amounts incurred for KMP services provided by a separate management entity shall be disclosed.

19

Categories

Disclosures required by paragraph 18 shall be made separately for: the parent, entities with joint control/significant influence over the entity, subsidiaries, associates, joint ventures, KMP of the entity or its parent, and other related parties.

21

Transaction Examples

Examples of transactions to disclose include: purchases/sales of goods or assets, rendering/receiving services, leases, transfers of R&D, licence transfers, finance arrangements (loans/equity), guarantees, commitments, and settlement of liabilities on behalf of another.

23

Arm's Length

Disclosures that related party transactions were made on terms equivalent to arm's length transactions are made only if such terms can be substantiated.

24

Aggregation

Items of a similar nature may be disclosed in aggregate unless separate disclosure is necessary for understanding the effects of related party transactions.

25

Government Exemption

A reporting entity is exempt from the disclosure requirements of paragraph 18 for transactions/balances with a government that has control/joint control/significant influence over it, and with another entity related because the same government has control/joint control/significant influence over both.

26

Government Disclosure

If the exemption is applied, the entity discloses: (a) name of the government and nature of the relationship; (b) information on nature and amount of individually significant transactions; and (c) qualitative/quantitative indication of extent for other collectively significant transactions.

27

Judgement on Detail

In determining the level of detail for government-related disclosures, the entity considers the closeness of the relationship and factors like significant size, non-market terms, being outside normal operations, disclosure to regulators, reporting to senior management, or shareholder approval.

28

Effective Date

The standard applies retrospectively for annual periods beginning on or after 1 January 2011. Earlier application is permitted.