Related Party Disclosures

In April 2001 the International Accounting Standards Board (Board) adopted IAS 24
Related Party Disclosures, which had originally been issued by the International Accounting
Standards Committee in July 1984.
In December 2003 the Board issued a revised IAS 24 as part of its initial agenda of
technical projects that included amending disclosures on management compensation and
related party disclosures in separate financial statements. The Board revised IAS 24 again
to address the disclosures in government-related entities.
In November 2009 the Board issued a revised IAS 24 to simplify the definition of ‘related
party’ and to provide an exemption from the disclosure requirements for some
government-related entities.
Other Standards have made minor consequential amendments to IAS 24. They include
IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements
(issued May 2011), IFRS 12 Disclosure of Interests in Other Entities (issued May 2011), IAS 19
Employee Benefits (issued June 2011), Investment Entities (Amendments to IFRS 10, IFRS 12
and IAS 27) (issued October 2012) and Annual Improvements to IFRSs 2010–2012 Cycle (issued
December 2013).

International Accounting Standard 24 Related Party Disclosures (IAS 24) is set out
in paragraphs 1–29 and the Appendix. All of the paragraphs have equal authority but
retain the IASC format of the Standard when it was adopted by the IASB. IAS 24 should
be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS
Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and
applying accounting policies in the absence of explicit guidance.

International Accounting Standard 24
Related Party Disclosures
Objective

The objective of this Standard is to ensure that an entity’s financial statements
contain the disclosures necessary to draw attention to the possibility that its
financial position and profit or loss may have been affected by the existence of
related parties and by transactions and outstanding balances, including
commitments, with such parties.

Scope

This Standard shall be applied in:
(a) identifying related party relationships and transactions;
(b) identifying outstanding balances, including commitments, between
an entity and its related parties;
(c) identifying the circumstances in which disclosure of the items in (a)
and (b) is required; and
(d) determining the disclosures to be made about those items.
This Standard requires disclosure of related party relationships,
transactions and outstanding balances, including commitments, in the
consolidated and separate financial statements of a parent or investors
with joint control of, or significant influence over, an investee presented in
accordance with IFRS 10 Consolidated Financial Statements or IAS 27 Separate
Financial Statements. This Standard also applies to individual financial
statements.
Related party transactions and outstanding balances with other entities in a
group are disclosed in an entity’s financial statements. Intragroup related
party transactions and outstanding balances are eliminated, except for those
between an investment entity and its subsidiaries measured at fair value
through profit or loss, in the preparation of consolidated financial statements
of the group.
Purpose of related party disclosures
Related party relationships are a normal feature of commerce and business.
For example, entities frequently carry on parts of their activities through
subsidiaries, joint ventures and associates. In those circumstances, the entity
has the ability to affect the financial and operating policies of the investee
through the presence of control, joint control or significant influence.
A related party relationship could have an effect on the profit or loss and
financial position of an entity. Related parties may enter into transactions that
unrelated parties would not. For example, an entity that sells goods to its
parent at cost might not sell on those terms to another customer. Also, transactions between related parties may not be made at the same amounts as
between unrelated parties.
The profit or loss and financial position of an entity may be affected by a
related party relationship even if related party transactions do not occur. The
mere existence of the relationship may be sufficient to affect the transactions
of the entity with other parties. For example, a subsidiary may terminate
relations with a trading partner on acquisition by the parent of a fellow
subsidiary engaged in the same activity as the former trading partner.
Alternatively, one party may refrain from acting because of the significant
influence of another—for example, a subsidiary may be instructed by its
parent not to engage in research and development.
For these reasons, knowledge of an entity’s transactions, outstanding
balances, including commitments, and relationships with related parties may
affect assessments of its operations by users of financial statements, including
assessments of the risks and opportunities facing the entity.

Definitions

The following terms are used in this Standard with the meanings specified:
A related party is a person or entity that is related to the entity that is
preparing its financial statements (in this Standard referred to as the
‘reporting entity’).
(a) 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 of 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.
(b) 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 joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other
entity is an associate of the third entity.

(v) The entity is a post-employment 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 or 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 key management personnel services to the
reporting entity or to the parent of the reporting entity.
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.
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:
(a) that person’s children and spouse or domestic partner;
(b) children of that person’s spouse or domestic partner; and
(c) dependents of that person or that person’s spouse or domestic
partner.
Compensation includes all employee benefits (as defined in IAS 19 Employee
Benefits) including employee benefits to which IFRS 2 Share-based Payment
applies. Employee benefits are all forms of consideration paid, payable or
provided by the entity, or on behalf of the entity, in exchange for services
rendered to the entity. It also includes such consideration paid on behalf of
a parent of the entity in respect of the entity. Compensation includes:
(a) short-term employee benefits, such as wages, salaries and social
security contributions, paid annual leave and paid sick leave,
profit-sharing and bonuses (if payable within twelve months of the
end of the period) and non-monetary benefits (such as medical care,
housing, cars and free or subsidized goods or services) for current
employees;
(b) post-employment benefits such as pensions, other retirement
benefits, post-employment life insurance and post-employment
medical care;

(c) other long-term employee benefits, including long-service leave or
sabbatical leave, jubilee or other long-service benefits, long-term
disability benefits and, if they are not payable wholly within twelve
months after the end of the period, profit-sharing, bonuses and
deferred compensation;
(d) termination benefits; and
(e) share-based payment.
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of the
entity, directly or indirectly, including any director (whether executive or
otherwise) of that entity.
Government refers to government, government agencies and similar bodies
whether local, national or international.
A government-related entity is an entity that is controlled, jointly controlled
or significantly influenced by a government.
The terms ‘control’ and ‘investment entity’, ‘joint control’ and ‘significant
influence’ are defined in IFRS 10, IFRS 11 Joint Arrangements and IAS 28
Investments in Associates and Joint Ventures respectively and are used in this
Standard with the meanings specified in those IFRSs.
In considering each possible related party relationship, attention is directed to
the substance of the relationship and not merely the legal form.
In the context of this Standard, the following are not related parties:
(a) two entities simply because they have a director or other member
of key management personnel in common or because a member of key
management personnel of one entity has significant influence over the
other entity.
(b) two joint ventures simply because they share joint control of a joint
venture.
(c) (i) providers of finance,
(ii) trade unions,
(iii) public utilities, and
(iv) departments and agencies of a government that does not
control, jointly control or significantly influence the reporting
entity,
simply by virtue of their normal dealings with an entity (even though
they may affect the freedom of action of an entity or participate in its
decision-making process).
(d) a customer, supplier, franchisor, distributor or general agent with
whom an entity transacts a significant volume of business, simply by
virtue of the resulting economic dependence.

In the definition of a related party, an associate includes subsidiaries of the
associate and a joint venture includes subsidiaries of the joint venture.
Therefore, for example, an associate’s subsidiary and the investor that has
significant influence over the associate are related to each other.

Disclosures
All entities

Relationships between a parent and its subsidiaries shall be disclosed
irrespective of whether there have been transactions between them. An
entity shall disclose 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 shall 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.
Paragraph 13 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 shall disclose key management personnel compensation in total
and for each of the following categories:
(a) short-term employee benefits;
(b) post-employment benefits;
(c) other long-term benefits;
(d) termination benefits; and
(e) 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 paragraph 17 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:
(a) the amount of the transactions;
(b) the amount of outstanding balances, including commitments, and:
(i) their terms and conditions, including whether they are
secured, and the nature of the consideration to be provided
in settlement; and
(ii) details of any guarantees given or received;
(c) provisions for doubtful debts related to the amount of outstanding
balances; and
(d) the expense recognized during the period in respect of bad or
doubtful debts due from related parties.
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 by paragraph 18 shall be made separately for each
of the following categories:
(a) the parent;
(b) entities with joint control of, or significant influence over, the
entity;
(c) subsidiaries;
(d) associates;
(e) joint ventures in which the entity is a joint venture;
(f) key management personnel of the entity or its parent; and
(g) 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:
(a) purchases or sales of goods (finished or unfinished);
(b) purchases or sales of property and other assets;
(c) rendering or receiving of services;
(d) leases;
(e) transfers of research and development;

(f) transfers under license agreements;
(g) transfers under finance arrangements (including loans and equity
contributions in cash or in kind);
(h) provision of guarantees or collateral;
(i) commitments to do something if a particular event occurs or does not
occur in the future, including executory contracts1

(recognized and

unrecognized); and
(j) settlement of liabilities on behalf of the entity or by the entity on
behalf of that related party.
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.

Government-related entities

A reporting entity is exempt from the disclosure requirements
of paragraph 18 in relation to related party transactions and outstanding
balances, including commitments, with:
(a) a government that has control or joint control of, or significant
influence over, the reporting entity; and
(b) another entity that is a related party because the same government
has control or joint control of, or significant influence over, both
the reporting entity and the other entity.
If a reporting entity applies the exemption in paragraph 25, it shall disclose
the following about the transactions and related outstanding balances
referred to in paragraph 25:
(a) the name of the government and the nature of its relationship with
the reporting entity (ie control, joint control or significant
influence);
(b) the following information in sufficient detail to enable users of the
entity’s financial statements to understand the effect of related
party transactions on its financial statements:

(i) the nature and amount of each individually significant
transaction; and
(ii) for other transactions that are collectively, but not
individually, significant, a qualitative or quantitative
indication of their extent. Types of transactions include
those listed in paragraph 21.

In using its judgement to determine the level of detail to be disclosed in
accordance with the requirements in paragraph 26(b), the reporting entity
shall consider the closeness of the related party relationship and other factors
relevant in establishing the level of significance of the transaction such as
whether it is:
(a) significant in terms of size;
(b) carried out on non-market terms;
(c) outside normal day-to-day business operations, such as the purchase
and sale of businesses;
(d) disclosed to regulatory or supervisory authorities;
(e) reported to senior management;
(f) subject to shareholder approval.

Effective date and transition

An entity shall apply this Standard retrospectively for annual periods
beginning on or after 1 January 2011. Earlier application is permitted, either
of the whole Standard or of the partial exemption in paragraphs
25–27 for government-related entities. If an entity applies either the whole
Standard or that partial exemption for a period beginning before 1 January
2011, it shall disclose that fact.
IFRS 10, IFRS 11 Joint Arrangements and IFRS 12, issued in May 2011, amended
paragraphs 3, 9, 11(b), 15, 19(b) and (e) and 25. An entity shall apply those
amendments when it applies IFRS 10, IFRS 11 and IFRS 12.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), issued in
October 2012, amended paragraphs 4 and 9. An entity shall apply those
amendments for annual periods beginning on or after 1 January 2014. Earlier
application of Investment Entities is permitted. If an entity applies those
amendments earlier it shall also apply all amendments included in Investment
Entities at the same time.
Annual Improvements to IFRSs 2010–2012 Cycle, issued in December 2013,
amended paragraph 9 and added paragraphs 17A and 18A. An entity shall
apply that amendment for annual periods beginning on or after 1 July 2014.
Earlier application is permitted. If an entity applies that amendment for an
earlier period it shall disclose that fact.

Withdrawal of IAS 24 (2003)

29 This Standard supersedes IAS 24 Related Party Disclosures (as revised in 2003).

Appendix
Amendment to IFRS 8 Operating Segments

This amendment contained in this appendix when this Standard was issued in 2009 has been
incorporated into IFRS 8 as published in this volume.

Approval by the Board of IAS 24 issued in November 2009

International Accounting Standard 24 Related Party Disclosures (as revised in 2009) was
approved for issue by thirteen of the fifteen members of the International Accounting
Standards Board. Mr Garnett dissented. His dissenting opinion is set out after the Basis
for Conclusions. Ms McConnell abstained from voting in view of her recent appointment
to the Board.
Sir David Tweedie Chairman
Stephen Cooper
Philippe Danjou
Jan Engström
Patrick Finnegan
Robert P Garnett
Gilbert Gélard
Amaro Luiz de Oliveira Gomes
Prabhakar Kalavacherla
James J Leisenring
Patricia McConnell
Warren J McGregor
John T Smith
Tatsumi Yamada
Wei-Guo Zhang