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FINANCIAL ACCOUNTING 300
DEPARTMENT OF
IAS 24: Related Party Transactions
ACCOUNTING
Notes and class examples
UP
M Malatjie
What line items in the financial statements are influenced by IAS 24?
IAS 24 requires only disclosure of certain information in the notes to the financial
statements. Thus, no line items in the financial statements are influenced by IAS 24.
IAS 24: Related party disclosures
1. Scope
Refer to IAS 24, par 2-4, for the scope of IAS 24.
2. The definition of a related party
What is a related party?
Refer to the definition in IAS 24, par 9.
2.1 Persons that are related parties to the reporting entity
Which persons are related to the reporting entity?
Refer to IAS 24, par 9(a), which can be schematically presented as follows:
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Who are close members of the family of a person?
Refer to IAS 24, par 9.
Who are key management personnel?
Refer to IAS 24, par 9.
2.2 Entities that are parties related to the reporting entity
Which entities are related to the reporting entity?
Refer to IAS 24, par 9(b), which is discussed further below.
(i) The entity and the reporting entity are members of the same group
This means that every parent, subsidiary and fellow subsidiary are related to each
other.
Note that a group comprises only a parent and its subsidiaries (per IFRS 10) and
thus a group does not include any associates or joint ventures.
(ii) One entity is an associate or a joint venture of another entity
This will also be applicable where the one entity is an associate or joint venture of
a member of the other entity’s group (i.e. the one entity is an associate or a joint
venture of a parent, subsidiary or fellow subsidiary of the other entity).
Note that for the definition of a related party, the reference to an associate/joint
venture, also includes a subsidiary of the associate / joint venture. (IAS
24.12)
Refer to Illustrative Example 2 of IAS 24 (Part B of the IFRS set).
(iii) Both entities are joint ventures of the same third party
3rd party
Joint venture A Joint venture B
Refer to Illustrative Example 6 of IAS 24 (Part B of the IFRS set).
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(iv) One entity is a joint venture of a third party and the other entity is an
associate of the third party
3rd party
Joint venture Associate
Note: Two associates of the same third party will not be related parties of each
other per IAS 24. This arises because insufficient influence arises from the normal
investment in two associates. There needs to be some form of control or joint
control in the relationship between the entities in order for them to be seen as
related parties.
Refer to Illustrative Example 2 of IAS 24 (Part B of the IFRS set).
(v) The entity is a post-employment benefit plan for the benefit of employees of
the reporting entity or is an entity related to the reporting entity. If the
reporting entity is itself such a plan, the sponsoring employers will also be
related to the reporting entity.
Example 1: Post-employment benefit plan
Parent
Post-employment
benefit plan for A’s
Subsidiary A employees
In Parent’s separate financial statements, the following are related parties:
• Subsidiary A = Member of the same group [.9(b)(i)]
• Post-employment benefit plan = Post-employment benefit plan for the benefit of
the employees of an entity that is related to the reporting entity .9(b)(v)]
In the Parent’s consolidated financial statements, the following would be related
parties:
• Post-employment benefit plan = Post-employment benefit plan for the benefit of
the employees of an entity that is related to the reporting entity .9(b)(v)
In Subsidiary A’s financial statements, the following would be related parties:
• Parent = Member of the same group [.9(b)(i)]
• Post-employment benefit plan = Post-employment benefit plan for the benefit of
the entity’s employees [.9(b)(v)]
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In Post-employment benefit plan’s financial statement, the following are related
parties:
• Subsidiary A = If the reporting entity is itself a post-employment benefit plan, the
sponsoring employers will be related to the reporting entity. [.9(b)(v)]
(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)
Thus, if a person has control or joint control of the reporting entity as well as:
• significant influence over another entity OR
• is a member of the key personnel of another entity
Then that other entity is a related party of the reporting entity.
2.3 Parties that are not related parties
Refer to IAS 24, par 11 for a list of parties that are not related parties.
Note that the use of the term “simply”, which indicates that there are other factors that
may result in the parties being related, in which case the inclusion would be applicable.
Therefore, if conditions arise that fall within the definition of a related party in terms of
IAS 24.9 the parties will be related.
3. Disclosure
Refer to IAS 24, par 13-16, for disclosure requirements of related party relationships.
Refer to IAS 24, par 17, for disclosure requirements of remuneration of key
management personnel
What is compensation?
Refer to IAS 24, par 9.
3.3 Disclosure of related party transactions
Refer to IAS 24, par 18-19 and 24, for disclosure requirements of related party
transactions.
What is a related party transaction?
Refer to IAS 24, par 9.
What are some examples of related party transactions?
Refer to IAS 24, par 21.
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Example 2: Illustrative disclosure
Entity Limited
Notes for the year ended 28 February 20X14
20. Related parties
Relationships between parent and subsidiaries [IAS 24.13]
The ultimate parent of the company is X Limited and the ultimate controlling party
is Z Limited.
The following are subsidiaries of the group:
• ABC Limited (80% interest)
• DEF Limited (60% interest)
Compensation of key management personnel [IAS 24.17]
20X19 20X18
R R
Short-term employee benefits [IAS 24.17(a)] xxx xxx xxx xxx
Post-employment benefits [IAS 24.17(b)] xxx xxx xxx xxx
Other long-term benefits [IAS 24.17(c)] xxx xxx xxx xxx
Termination benefits [IAS 24.17(d)] xxx xxx xxx xxx
Share-based payments * [IAS 24.17(e)] xxx xxx xxx xxx
xxx xxx xxx xxx
*Not FRK 300
Transactions with related parties [IAS 24.18]
Transactions with the parent [IAS 24.19(a)]
20X19 20X18
R R
Purchase of goods from related parties xxx xxx xxx xxx
Amounts owing to related parties xxx xxx xxx xxx
The amounts owing to the related parties are unsecured and will be settled in cash
within the normal operating cycle of the company. [IAS 24.18(b)(i)]
20X19 20X18
R R
Loan from related party xxx xxx xxx xxx
The loan from the related party is unsecured and repayable over a period of x
years at an interest rate of x% per year. [IAS 24.18(b)(i)]
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Transactions with entities with joint control / significant influence over the company
[IAS 24.19(b)]
20X19 20X18
R R
Supply of services to related party xxx xxx xxx xxx
Amounts receivable from related parties xxx xxx xxx xxx
The amounts receivable from related parties are unsecured and will be received in
cash within the normal operating cycle of the company. [IAS 24.18(b)(i)]
An amount of Rx (20X18: Rx) owing by related parties, has been included in the
allowance for credit losses (refer to note x). [IAS 24.18(c)]
The expense that was recognised during the period in respect of the allowance
for credit losses in respect of related parties amounts to Rx (20X13: Rx). [IAS
24.18(d)]
Transactions with subsidiaries [IAS 24.19(c)]
20X19 20X18
R R
Sale of goods to related parties xxx xxx xxx xxx
Transactions with associate [IAS 24.19(d)]
Guarantees of Rx (20X18: Rx) have been provided in respect of obligations of the
related party. [IAS 24.18(b)(ii)]
Transactions with joint ventures [IAS 24.19(e)]
20X19 20X18
R R
Obligations settled on behalf of related parties xxx xxx -
Transactions with key management personnel of the entity/parent [IAS 24.19(f)]
20X19 20X18
R R
Rent paid to a related party xxx xxx xxx xxx
Transactions with other related parties [IAS 24.19(g)]
20X19 20X18
R R
Purchase of goods from related parties xxx xxx xxx xxx
Sale of goods to related parties xxx xxx xxx xxx
Services received from related parties xxx xxx xxx xxx
Amounts owing by related parties xxx xxx xxx xxx
Amounts owing to related parties xxx xxx xxx xxx
