Related Party Disclosures
The Board discussed two sweep issues related to the forthcoming re-exposure draft of proposed amendments to IAS 24 Related Party Transactions:
- disclosure of the extent of transactions with a state or state-controlled entities
- the length of the comment period
Disclosure of the extent of transactions with a state or state-controlled/ influenced entities
The staff presented proposed wording intended to capture concerns expressed by Board members about the disclosures that would be required about the extent of transactions with a state or state-controlled/ influenced entities. The revised wording would require the entity to disclose 'the extent of transactions with [the entities defined in the ED]'. Related explanatory guidance suggests that such disclosure would state whether transactions with the state or other entities controlled, jointly-controlled or significantly influenced by the state were 'significant or insignificant'. In addition, the reporting entity would 'not [be] required to analyse those transactions by counterparty or by nature and need not provide detailed quantitative information about their extent'.
Several Board members stated that they did not like the proposed wording, which they thought did not communicate strongly enough the 'health warning' desired by the Board. These Board members were anxious to avoid boilerplate disclosure; they wanted meaningful disclosure that there might be significant related party transactions and where in the financial statements those transactions might be reported. They supported the intent of a suggestion from one Board member that disclosure be required of the 'nature and extent of these transactions in total for the state and all such entities, either qualitatively (for example, a significant portion of the revenues is transacted with state controlled entities) or quantitatively (for example, about one quarter of the sales)'.
The staff expressed concerns about the implied information accumulation obligation of this proposal and that to disclose information about the nature of the transactions (that is, where in the financial statements the effects might be recognised) implied a data obligation that the ED was designed to avoid.
The Chairman intervened to suggest that the staff redraft the requirement such that:
- A reporting entity could quantify the transactions with the state or other entities referred to in the ED.
- If it did not, the entity would be required to disclose whether transactions with the state or other entities referred to in the ED were significant, insignificant, or significance could not be determined by the reporting entity.
- If transactions were significant, the reporting entity would be required to disclose the nature of such transactions.
This suggestion was accepted by the Board.
The length of the comment period
The Board agreed that the comment period for the re-exposure draft should be 90 days rather than the more usual 120 days.