To ensure that an entity's financial statements contain the necessary disclosures 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
Transactions and outstanding balances (including commitments) with such parties.
The core idea is transparency ā€“ users need to know if transactions might not be at 'arm's length' due to relationships influencing the terms.
This standard applies to:
Identifying related party relationships and transactions.
Identifying outstanding balances, including commitments, between an entity and its related parties.
Identifying the circumstances requiring disclosure of these items.
Determining the specific disclosures to be made.
Disclosure requirements apply to individual, separate, and consolidated financial statements prepared under IFRS.
Also applies to related party disclosures concerning relationships between government-related entities.
Related Party:
A person or entity that is related to the entity preparing its financial statements (the reporting entity). See specific identification criteria below.
Related Party Transaction:
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:
Those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.
The person's children and spouse or domestic partner.
Children of the person's spouse or domestic partner.
Dependants of the person or the person's spouse or domestic partner.
Key Management Personnel (KMP):
Persons having authority and responsibility for planning, directing, and controlling the activities of the entity, directly or indirectly.
Includes directors (executive or otherwise) and other senior management.
Control, Joint Control, and Significant Influence:
| Term | Definition (Simplified) | Relevant Standard |
| Control | Power over the investee; exposure/rights to variable returns; ability to use power to affect returns. | IFRS 10 |
| Joint Control | Contractually agreed sharing of control; decisions require unanimous consent of parties sharing control. | IFRS 11 |
| Significant Influence | Power to participate in financial/operating policy decisions, but not control or joint control. (Presumed if 20%+ voting power). | IAS 28 |
Government-related Entity:
An entity that is controlled, jointly controlled, or significantly influenced by a government (national, regional, or local).
Relationships Involving Individuals:
A person (or their close family member) is related to a reporting entity if that person:
Has control or joint control over the reporting entity.
Has significant influence over the reporting entity.
Is a member of the Key Management Personnel (KMP) of the reporting entity or of a parent of the reporting entity.
Relationships Involving Entities:
An entity is related to a reporting entity if any of the following conditions applies:
The entity and the reporting entity are members of the same group (parent, subsidiary, fellow subsidiary).
One entity is an associate or joint venture of the other entity (or member of group).
Both entities are joint ventures of the same third party.
One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to it.
The entity is controlled or jointly controlled by a person identified in the "Individuals" section above.
A person identified in the "Individuals" section (point 1) has significant influence over the entity or is KMP of the entity (or its parent).
The entity, or any member of a group which it is part of, provides key management personnel services to the reporting entity or to its parent.
Parties NOT Necessarily Related:
IAS 24 explicitly states certain parties are not related parties merely by virtue of:
Two entities having a director or other KMP in common.
Two venturers sharing joint control over a joint venture.
Providers of finance, trade unions, public utilities, government departments/agencies (in course of normal dealings).
A single customer, supplier, franchisor, distributor, or general agent with whom an entity transacts a significant volume of business (economic dependence alone doesn't create a related party).
Definition Recap:
Transfer of resources, services, or obligations between related parties, whether or not a price is charged.
Examples of Related Party Transactions (Requires Disclosure IF between Related Parties):
| Transaction Type | Examples |
| Purchases or Sales | Goods (finished or unfinished), Property and other assets |
| Services | Rendering or receiving of services (e.g., management services, IT support) |
| Leases | Operating leases, Finance leases (as lessor or lessee) |
| Transfers of R&D | Sharing or transferring research and development outcomes |
| License Agreements | Use of patents, trademarks under license |
| Financing Arrangements | Loans, Contributions to equity (cash or in kind), Guarantees or collateral provided |
| Commitments | Commitments to perform actions if specific future events occur/do not occur |
| Settlement of Liabilities | Settling liabilities on behalf of another party or vice versa |
| KMP Services | Provision of key management personnel services to/from another entity |
Parent-Subsidiary Relationships:
Relationships between a parent and its subsidiaries must be disclosed irrespective of whether there have been transactions between them.
Disclose the name of the entity's parent and, if different, the ultimate controlling party.
If neither parent nor ultimate controlling party produces publicly available consolidated financials, disclose the name of the next most senior parent that does so.
Key Management Personnel (KMP) Compensation:
Disclose KMP compensation in total and broken down into the following categories:
Short-term employee benefits.
Post-employment benefits.
Other long-term benefits.
Does not require allocation of KMP compensation per individual.
Related Party Transactions:
If related party transactions have occurred, disclose:
The nature of the related party relationship.
Information about the transactions and outstanding balances (incl. commitments) needed for users to understand the potential effect on the financial statements.
Minimum disclosures for transactions include:
The amount of the transactions.
The amount of outstanding balances, their terms & conditions (incl. security, settlement consideration).
Provisions for doubtful debts related to outstanding related party balances.
Expense recognized during the period for bad or doubtful debts due from related parties.
Disclosures must be made separately for each category of related party (e.g., parent, subsidiaries, associates, JVs, KMP, other). Aggregation is allowed only if detail not needed for understanding.
Disclosure that transactions were made on terms equivalent to those prevailing in arm's length transactions is made only if such terms can be substantiated.
Government-related Entities:
A reporting entity is exempt from the detailed transaction disclosures above for transactions/balances with:
A government that has control, joint control, or significant influence over the reporting entity; AND
Another entity that is a related party *because the same government* has control, joint control, or significant influence over both entities.
If the exemption applies, the entity must still disclose:
The name of the government and the nature of its relationship.
Sufficient information about the nature and amount of each individually significant transaction.
For other transactions that are collectively significant (but not individually), qualitative or quantitative indications of their extent.
Judgment is needed to determine significance based on size and nature of transactions.
Transparency: Highlights potential conflicts of interest or transactions that may not reflect market terms due to relationships.
Assessment: Helps users assess how related parties might have influenced the reporting entity's financial performance and position.
Comparability: Aids in comparing the entity's results with other entities that may have different levels or types of related party dealings.
Risk Identification: Can indicate risks associated with reliance on related parties or potential off-market transactions.
