related party transactions
DESCRIPTION
Related Party Transactions. Sujeewa Mudalige. Overview of session. 1. Introduction. 2. Recognition. 3. Disclosure. 4. New developments. Related Party Disclosures. Introduction. Scope of IAS 24 / LKAS 24. - PowerPoint PPT PresentationTRANSCRIPT
TRANSFORM
Changing business by changing
behaviour
Related Party Transactions
Sujeewa Mudalige
2 TRANSFORM
Overview of session
1. Introduction
2. Recognition
3. Disclosure
4. New developments
TRANSFORM
Changing business by changing
behaviour
Related Party Disclosures
Introduction
4 TRANSFORM
Scope of IAS 24 / LKAS 24
• Parties are related if one party can control or exercise significant influence over the other
• IAS 24 covers those parties which are related and details a number of exclusions
• Disclosure is required for:
– Upwards and downwards control relationships
– Details of the transactions
TRANSFORM
Changing business by changing
behaviour
Related Party Disclosures
Recognition
6 TRANSFORM
Determining related parties
Determining Related Parties
Control
Significant influence
Parents Subsidiaries Fellow subsidiaries Joint ventures Other entities controlled by owners or
key management
Key management personnel
7 TRANSFORM
Examples of related party transactions
Sales and purchases of good and services
Balances arising as a result at the Balance Sheet date
Loans, commitments and contingencies
Transactions with directors
Bank loans and collateral
Agency arrangements
Share capital transactions
8 TRANSFORM
Exclusions
Providers of finance
Trade Unions
Public utilities
Government departments and agencies
Single suppliers / customers / franchises / distributors unless a specific relationship exists
Entities with a director in common unless that director has the ability to direct or significantly influence
9 TRANSFORM
Exemptions
Stand alone financial statements of a parent if consolidated statements are available
Financial statements of a wholly owned subsidiary if parent incorporated in the same country and providing financial statements
Intra-group transactions that have been eliminated on consolidation
State controlled entities
10 TRANSFORM
Related parties for only part of the year
Company A acquires 25% of Company B, regular supplier, on 1/9/20XX for which it
equity accounts.
During the year ended 31/12/20XX Company B makes sales to A of 2,000. The total sales till 1/9/20XX were 1,100.
The companies are related from 1/9/20XX and 900 should be disclosed as a related
party transaction.
TRANSFORM
Changing business by changing
behaviour
Related Party Disclosures
Measurement
12 TRANSFORM
Measuring transactions
Arm’s length
Cost
Cost plus
Resale price Free of charge
Methods
TRANSFORM
Changing business by changing
behaviour
Related Party Disclosures
Disclosure
14 TRANSFORM
Disclosures
Nature of the relationships
Types of transaction
Volume and value of the transaction
Pricing policies
Balances at year end
15 TRANSFORM
Improvements project (1)
• Related party definition clarified to include
– Parties with joint control over entity
– Joint ventures
– Post-employment benefit plan
• Significant influence definition - conformed to IAS / LKAS 28
• Wholly owned subsidiary – exemption no longer limited to parent in same country
• State-controlled entities no longer exempt
16 TRANSFORM
Improvements project (2)
• No longer sufficient to disclose proportions of transactions / balances
– must disclose full amounts
• Additional disclosures by category of related party :
– Terms and conditions (security / consideration)
– Guarantees given / received
– Provisions for doubtful debts (incl P/L expense)
– Settlement of liabilities on behalf of entity
• Pricing policies / management compensation cost not required