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);Non current assets held for sale
  2. purchases or sales of property and other assets; Related party transaction
  3. rendering or receiving of services; Related party transaction
  4. leases; Related party transaction
  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.
Something else -   So, what exactly is a joint venture?

Related party transaction

 

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.

Disclosures

In general, any related party transaction should be disclosed that would impact the decision making of the users of a company’s financial statements. This involves the following disclosures:

  • General. Disclose all material related party transactions, including the nature of the relationship, the nature of the transactions, the dollar amounts of the transactions, the amounts due to or from related parties and the settlement terms (including tax-related balances), and the method by which any current and deferred tax expense is allocated to the members of a group. Do not include compensation arrangements, expense allowances, or any transactions that are eliminated in the consolidation of financial statements.
  • Control relationship. Disclose the nature of any control relationship where the company and other entities are under common ownership or management control, and this control could yield results different from what would be the case if the other entities were not under similar control, even if there are no transactions between the businesses.
  • Receivables. Separately disclose any receivables from officers, employees, or affiliated entities.

Depending on the transactions, it may be acceptable to aggregate some related party information by type of transaction. Also, it may be necessary to disclose the name of a related party, if doing so is required to understand the relationship.

Something else -   IFRS 3 Royalty arrangements as contingent considerations - Best Fine Read

When disclosing related party information, do not state or imply that the transactions were on an arm’s-length basis, unless you can substantiate the claim.

 

Related party transaction

Annualreporting provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.

Something else -   So, what exactly is a joint venture?

Leave a comment