Related party transaction

IAS 24 Definition: A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.

See the definitions for related parties here.

A related-party transaction is a deal or arrangement between two parties who are joined by a pre-existing business relationship or common interest. For example, a contract between a major shareholder of a corporation and that corporation, agreeing that the shareholder’s company will renovate the corporation’s offices would be a related-party transaction.

Companies often seek to secure business deals with parties with whom they are familiar or have a common interest. Although these types of transactions are legal, they potentially could create a conflict of interest, or lead to another situation that is illegal. So sometimes related-party transactions must be approved by management consensus or the company’s board of directors.

The following are examples of transactions that are disclosed if they are with a related party:

  1. purchases or sales of goods (finished or unfinished);
  2. purchases or sales of property and other assets;
  3. rendering or receiving of services;
  4. leases;
  5. transfers of research and development;
  6. transfers under licence agreements;
  7. transfers under finance arrangements (including loans and equity contributions in cash or in kind);
  8. provision of guarantees or collateral;
  9. commitments to do something if a particular event occurs or does not occur in the future, including executory contracts (recognised and unrecognised); and
  10. settlement of liabilities on behalf of the entity or by the entity on behalf of that related party.

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Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:

  1. that person’s children and spouse or domestic partner;
  2. children of that person’s spouse or domestic partner; and
  3. dependants of that person or that person’s spouse or domestic partner.

Related party transaction

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