TRANSFORM

Changing business by changing

behaviour

Related Party Transactions

Sujeewa Mudalige

2 TRANSFORM

Overview of session

1. Introduction

2. Recognition

3. Disclosure

4. New developments

TRANSFORM

Changing business by changing

behaviour

Related Party Disclosures

Introduction

4 TRANSFORM

Scope of IAS 24 / LKAS 24

• Parties are related if one party can control or exercise significant influence over the other

• IAS 24 covers those parties which are related and details a number of exclusions

• Disclosure is required for:

– Upwards and downwards control relationships

– Details of the transactions

TRANSFORM

Changing business by changing

behaviour

Related Party Disclosures

Recognition

6 TRANSFORM

Determining related parties

Determining Related Parties

Control

Significant influence

Parents Subsidiaries Fellow subsidiaries Joint ventures Other entities controlled by owners or

key management

Key management personnel

7 TRANSFORM

Examples of related party transactions

Sales and purchases of good and services

Balances arising as a result at the Balance Sheet date

Loans, commitments and contingencies

Transactions with directors

Bank loans and collateral

Agency arrangements

Share capital transactions

8 TRANSFORM

Exclusions

Providers of finance

Trade Unions

Public utilities

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 influence

9 TRANSFORM

Exemptions

Stand alone financial statements of a parent if consolidated statements are available

Financial statements of a wholly owned subsidiary if parent incorporated in the same country and providing financial statements

Intra-group transactions that have been eliminated on consolidation

State controlled entities

10 TRANSFORM

Related parties for only part of the year

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.

TRANSFORM

Changing business by changing

behaviour

Related Party Disclosures

Measurement

12 TRANSFORM

Measuring transactions

Arm’s length

Cost

Cost plus

Resale price Free of charge

Methods

TRANSFORM

Changing business by changing

behaviour

Related Party Disclosures

Disclosure

14 TRANSFORM

Disclosures

Nature of the relationships

Types of transaction

Volume and value of the transaction

Pricing policies

Balances at year end

15 TRANSFORM

Improvements project (1)

• Related party definition clarified to include

– Parties with joint control over entity

– Joint ventures

– Post-employment benefit plan

• Significant influence definition - conformed to IAS / LKAS 28

• Wholly owned subsidiary – exemption no longer limited to parent in same country

• State-controlled entities no longer exempt

16 TRANSFORM

Improvements project (2)

• No longer sufficient to disclose proportions of transactions / balances

– must disclose full amounts

• Additional disclosures by category of related party :

– Terms and conditions (security / consideration)

– Guarantees given / received

– Provisions for doubtful debts (incl P/L expense)

– Settlement of liabilities on behalf of entity

• Pricing policies / management compensation cost not required