- You need to be able to identify and determine the parties considered to be related to an entity
- You’ll also need to identify the implications of related party relationships and the need for disclosures
Terms and Definitions
Key Management Personnel (‘KMP’)
Those persons having authority and responsibility for; planning, directing, and controlling the activities of the entity, directly or indirectly, including all directors (executive and non-executive).
Close family member
Includes, but is not limited to:
- Children and Dependants
- Spouse/Partner
- Children and Dependants of
- Spouse/Partner.
Need to assess case-by-case, in terms of level of influence.
Related party transaction
A related party transaction is a transfer of resources, services, or obligations between related parties, regardless of whether a price is charged.
Government-related entity
Entity that is controlled, jointly controlled or significantly influenced by a ‘government’.
Government
Refers to government, government agencies and similar bodies whether local, national or international.
Who are related parties?
A related party is a person or entity that is related to the reporting entity.
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 over 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.
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 JVs of the same third party.
(iv) One entity is a JV, and the other entity is an associate of the same entity.
(v) The entity is a post-employment defined 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/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 KMP services to the reporting entity or to the parent of the reporting entity.
What are not related parties?
- Entities with a director or other KMP in common
- Two venturers in control of a JV
- Providers of finance
- Trade unions
- Public utilities
- Departments/Govt Agencies the government does not control/jointly control/significantly influence.
- Major customers/suppliers/distributors/agents
Disclosures
Relationships between parents and subsidiaries
Regardless of whether there have been transactions
Disclose
- name of parent, and (if different)
- ultimate controlling party
Key management personnel compensation
Disclose in total for the following categories:
- Short-term employee benefits
- Post-employment benefits
- Other long-term benefits
- Termination benefits
- Share-based payments.
Related party transactions
Only if there have been transactions, disclose:
- The nature of related party relationship
- Information about transactions
- Information about outstanding balances to understand the potential effect on the financial statements
- Information about impairment or bad debts with related parties.
Government related entities are exempt from these disclosures.
These disclosures are required for each category of related parties, and include the:
- amount of the transactions
- amount of outstanding balances, including terms and conditions and guarantees
- provisions for doubtful debts for related parties
- expense recognised during the period in respect of bad or doubtful debts due from related parties
Arms length transactions
A statement that related party transactions were made on terms equivalent to those that prevail in arm’s length transactions should be made only if such terms can be substantiated.