Understanding related party disclosures – Best 2 be read in full

Understanding related party disclosures

Example Understanding related party disclosures shows two disclosures of related-party transactions. Here is a real life disclosure from Petrobas in Brasil followed by an example from IAS 24:

Disclosure requirements

Relationships between a parent and its subsidiaries is disclosed irrespective of whether there have been transactions between them. An entity discloses the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior parent that does so is also be disclosed.

To enable users of financial statements to form a view about the effects of related party relationships on an entity, it is appropriate to disclose the related party relationship when control exists, irrespective of whether there have been transactions between the related parties.

The requirement to disclose related party relationships between a parent and its subsidiaries is in addition to the disclosure requirements in IAS 27 and IFRS 12 Disclosure of Interests in Other Entities.

Relationships between a parent and its subsidiaries refers to the next most senior parent. This is the first parent in the group above the immediate parent that produces consolidated financial statements available for public use.

An entity discloses key management personnel compensation in total and for each of the following categories:

  1. short-term employee benefits;
  2. post-employment benefits;
  3. other long-term benefits;
  4. termination benefits; and
  5. share-based payment.

If an entity obtains key management personnel services from another entity (the ‘management entity’), the entity is not required to apply the requirements in for disclosures of key management personnel compensation  to the compensation paid or payable by the management entity to the management entity’s employees or directors.

If an entity has had related party transactions during the periods covered by the financial statements, it shall disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements. These disclosure requirements are in addition to those in paragraph 17. At a minimum, disclosures shall include:

  1. the amount of the transactions;
  2. the amount of outstanding balances, including commitments, and:
    1. their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and
    2. details of any guarantees given or received;
  3. provisions for doubtful debts related to the amount of outstanding balances; and
  4. the expense recognised during the period in respect of bad or doubtful debts due from related parties.
Something else -   Key management personnel

Amounts incurred by the entity for the provision of key management personnel services that are provided by a separate management entity shall be disclosed.

The disclosures required for related party transactions shall be made separately for each of the following categories:

  1. the parent;
  2. entities with joint control of, or significant influence over, the entity;
  3. subsidiaries;
  4. associates;
  5. joint ventures in which the entity is a joint venturer;
  6. key management personnel of the entity or its parent; and
  7. other related parties.

The classification of amounts payable to, and receivable from, related parties in the different categories as required in paragraph 19 is an extension of the disclosure requirement in IAS 1 Presentation of Financial Statements for information to be presented either in the statement of financial position or in the notes. The categories are extended to provide a more comprehensive analysis of related party balances and apply to related party transactions.

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 contracts1 (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 -   Best complete read IAS 24 Disclosure Related party transactions

Participation by a parent or subsidiary in a defined benefit plan that shares risks between group entities is a transaction between related parties (see paragraph 42 of IAS 19 (as amended in 2011)).

Disclosures that related party transactions were made on terms equivalent to those that prevail in arm’s length transactions are made only if such terms can be substantiated.

Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity.

 

Exemption from disclosure (IAS 24 25)

Government G directly or indirectly controls Entities 1 and 2 and Entities A, B, C and D. Person X is a member of the key management personnel of Entity 1.

Understanding related party disclosures

For Entity A’s financial statements, the exemption in IAS 24 25 applies to:

  1. transactions with Government G; and Example – Understanding related party disclosures
  2. transactions with Entities 1 and 2 and Entities B, C and D. Example – Understanding related party disclosures

However, that exemption does not apply to transactions with Person X. Example – Understanding related party disclosures

Disclosure requirements when an exemption applies Example – Understanding related party disclosures

In Entity A’s financial statements, an example of disclosure to comply with IAS 24 26(b)(i) for individually significant transactions could be:

Example of disclosure for the individually significant transaction carried out on non-market terms

On 15 January 20X1 Entity A, a utility company in which Government G indirectly owns 75 percent of outstanding shares, sold a 10-hectare piece of land to another government-related utility company for CU5 million1. On 31 December 20X0 a plot of land in a similar location, of a similar size and with similar characteristics, was sold for CU3 million. There had not been any appreciation or depreciation of the land in the intervening period. See note X [of the financial statements] for disclosure of government assistance as required by IAS 12 Accounting for Government Grants and Disclosure of Government Assistance and notes Y and Z [of the financial statements] for compliance with other relevant IFRSs.

Something else -   Related parties transfer pricing

Example of disclosure for the individually significant transaction because of the size of the transaction

In the year ended December 20X1 Government G provided Entity A, a utility company in which Government G indirectly owns 75 percent of outstanding shares, with a loan equivalent to 50 per cent of its funding requirement, repayable in quarterly installments over the next five years. Interest is charged on the loan at a rate of 3 percent, which is comparable to that charged on Entity A’s bank loans2. See notes Y and Z [of the financial statements] for compliance with other relevant IFRSs.

Example of disclosure of collectively significant transactions

In Entity A’s financial statements, an example of disclosure to comply with IAS 24 26(b)(ii) for collectively significant transactions could be:

Government G, indirectly, owns 75 percent of Entity A’s outstanding shares. Entity A’s significant transactions with Government G and other entities controlled, jointly controlled or significantly influenced by Government G are [a large portion of its sales of goods and purchases of raw materials] or [about 50 per cent of its sales of goods and about 35 per cent of its purchases of raw materials].

The company also benefits from guarantees by Government G of the company’s bank borrowing. See note X [of the financial statements] for disclosure of government assistance as required by IAS 20 Accounting for Government Grants and Disclosure of Government Assistance and notes Y and Z [of the financial statements] for compliance with other relevant IFRSs.

Example disclosures

Understanding related party disclosures

Also read: Deutsche bank related party disclosures

Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures Understanding related party disclosures

General model of measurement of insurance contracts

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Something else -   Loans to an employee

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