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Related Party Disclosures: IAS 24
Wiecek and Young
IFRS Primer
Chapter 26
Related Party Disclosures
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Related standards
IAS 24
Current GAAP comparisons
IFRS financial statement disclosures
Looking ahead
End-of-chapter practice
Related Standards
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FAS 57 Related Party Disclosures
IAS 24 – Objective and Scope
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Related-party transactions are different from other types of
transactions
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Arm’s-length transactions
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Users may assume that the transaction reflects fair value
Would be entered into during the normal course of business or
with valid business reason from the entity’s perspective
Related-party transactions
– May be entered into for other reasons
– May be transacted at amounts other than fair value
IAS 24 – Objective and Scope
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Parties are related if:
(a) directly, or indirectly through one or more intermediaries, the party:
(i) controls, is controlled by, or is under common control with, the entity
(ii) has an interest in the entity that gives it significant influence over the entity; or
(iii) has joint control over the entity;
(b) the party is an associate of the entity;
(c) the party is a joint venture in which the entity is a venturer
(d) the party is a member of the key management personnel of the entity or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for
which significant voting power in such entity resides with, directly or indirectly, any individual
referred to in (d) or (e); or
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(g) the party is a post-employment benefit plan for the benefit of employees of the entity, or of
any entity that is a related party of the entity.
IAS 24 – Objective and Scope
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Control
– the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities
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Joint control
– the contractually agreed sharing of control over an economic activity
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Significant influence
– the power to participate in the financial and operating policy decisions of an entity,
but is not control over those policies
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may be gained by share ownership, statute or agreement
IAS 24 – Objective and Scope
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IAS 24 – Disclosure
Parent–Subsidiary Relationships
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Disclosures
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The name of the parent
The name of the ultimate controlling party
If neither of the above produce financial statements that are available, the name of
the next most senior parent
Management Compensation
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Disclosures
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Short-term employee benefits (wages, salaries, bonuses, etc.)
Post-employment benefits (pensions, life insurance, etc.)
Other long-term benefits (sabbatical, disability, etc.)
Terminations
Share-based payments
Total compensation benefits and subtotals for each of these categories
should be disclosed
IAS 24 – Disclosure
Related-Party Transactions
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Disclosures
– Amount
– Amount of balances still outstanding
– Provisions for doubtful debt and any related expense recognized during
the period
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Who should make separate disclosures?
– Parent
– Entities with joint control/significant influence over the entity
– Subsidiaries
– Associates
– Joint ventures
– Key management personnel
– Other related parties
IAS 24 – Disclosure
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Arm’s-length transactions/terms
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Examples of related-party transactions
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May only disclose if this claim can be substantiated
Substantiation might be made by benchmarking against other similar
transactions
Purchase or sales of goods or property
Leases
Loans
Guarantees
Others
Current GAAP Comparisons
Page 140 of 164 of
http://www.kpmg.co.uk/pubs/IFRScomparedtoU.S.GAAPAnOverview(2008).pdf
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IFRS Financial Statement
Disclosures
Heineken
http://www.annualreport.heineken.com/downloads/Heineken_AnnualReport_E
N_07.pdf
Related Parties note
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page 126 of 160
Looking Ahead
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No plans to fundamentally change this standard in the
near future
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There is a project underway to address the requirements
for state-controlled entities
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U.S. and international standards are already largely converged
Used to study the definition of related parties further for
associates and subsidiaries of the associate’s significant investor
End-of-Chapter Practice
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End-of-Chapter Practice
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End-of-Chapter Practice
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