IAS 24: Related party disclosures
Who counts as a related party, who doesn’t, and what must be disclosed, including key management personnel pay.
ACCA exams this helps with: FR Financial Reporting SBR Strategic Business Reporting See the ACCA map
New to this topic?
What it is: A disclosure standard. It makes companies tell readers about dealings with people and businesses close to them, such as directors, their families, and other group companies.
The key idea: related party deals might not be at normal market terms, so readers need to know about them. IAS 24 doesn’t change the numbers, only the notes.
Example. A company sells a car to its finance director’s wife for £5,000, well below its value. This must be disclosed as a related party transaction.
Key words
- Related party
- A person or entity related to the reporting entity, as defined in IAS 24 (for example, control, significant influence or key management).Example: The parent company, a director, or a director’s spouse.
- Key management personnel (KMP)
- People with authority and responsibility for planning, directing and controlling the entity’s activities, including directors.Example: The board of directors.
- Close members of the family
- Family who may influence, or be influenced by, the person: including children, spouse or domestic partner, and their children and dependants.Example: A director’s husband and children.
- Related party transaction
- A transfer of resources, services or obligations between related parties, whether or not a price is charged.Example: A loan from the parent to the subsidiary.
Learn
Who is related?
| A person (or close family member) is related if they… | An entity is related if… |
|---|---|
| have control or joint control of the reporting entity | it is in the same group (parent, subsidiary, fellow subsidiary) |
| have significant influence over it | one is an associate or joint venture of the other (or of a group member) |
| are key management personnel of the entity or its parent | both are joint ventures of the same third party, or one is a JV and the other an associate of the same third party |
| it is a post-employment benefit plan for the employees of either | |
| it is controlled or jointly controlled by a related person, or a related person with control has significant influence over it or is one of its KMP | |
| it (or its group) provides key management services to the reporting entity or its parent |
Not related just because of…
- two companies having a director in common
- two venturers sharing joint control of a joint venture
- providers of finance, trade unions, public utilities and government departments, in the normal course of dealings
- a customer, supplier, franchisor or agent with whom there is a large volume of business, just because of the economic dependence
What to disclose
- Parent–subsidiary relationships, whether or not there have been transactions, and the name of the parent and the ultimate controlling party.
- KMP compensation in total and for each category: short-term benefits, post-employment benefits, other long-term benefits, termination benefits and share-based payment.
- For transactions: the nature of the relationship, the amount, outstanding balances (with terms, guarantees and any allowance for bad debts) and the bad debt expense.
- Say transactions were on arm’s length terms only if that can be substantiated.
Government-related entities have a partial exemption from the transaction disclosures.
Worked example
Is each one related to Alpha plc?
| Situation | Related? |
|---|---|
| Beta Ltd, Alpha’s 70% subsidiary | Yes: same group |
| Gamma Ltd, Alpha’s 30% associate | Yes: associate |
| Mrs Khan, wife of Alpha’s finance director | Yes: close family of KMP |
| Delta Ltd, wholly owned by Mrs Khan | Yes: controlled by a related person |
| Alpha’s main bank, which lent it £2m | No: provider of finance in the normal course |
| Epsilon Ltd, which buys 60% of Alpha’s output | No: economic dependence alone |
| Zeta Ltd, which has one director in common with Alpha | No, unless that director can control or significantly influence both |
Alpha sells goods to Delta at a 30% discount. It discloses the relationship, the value of the sales, the balance outstanding at the year end and its terms. It can’t claim the sales were at arm’s length.
Practice questions
Type or choose your answers, then press Check answer. Questions with a New numbers button can be repeated with different figures.