Amendments to IAS 24: Related Party Disclosures

Date recorded:

Costs and benefits: disclosing related party transactions

The Board agreed that only related party relationships which arise through common control from the State should be considered for relief from the disclosure requirements of IAS 24. Other related party relationships, for example between entities controlled by the State and the State itself, are presumed to be material related party relationships that warrant disclosure (and are therefore not the type of relationship from which the amendments are designed to provide relief).

The State

The Board agreed that 'State' referred to all levels of government, such as central, national, federal, provincial, state, regional, local, town, or municipality.

Relief for State-controlled entities

The Board agreed that any relief provided by amendments to IAS 24 should be strictly limited to those entities that meet the definition of a related party simply because of common control from the State and that this relief should not include entities that are significantly influenced by the State.

The Board noted that any relief considered would be granted 'horizontally' but not 'vertically.' That is, for transactions between State-controlled entities but not for transactions between the State entities controlled by it.

What would the relief be?

The Board agreed that to distinguish between those transactions that should and should not be disclosed, IAS 24 should include indicators similar to the following.

IAS 24 would start from a presumption that State-controlled entities would make the assertion that common control from the State does not give rise to transactions that need to be disclosed by the reporting entity with respect to transactions with other State-controlled entities. However, certain indicators that might lead the entity to identify that related party relationships exist and that the entity should be disclosing the relationship and transactions. Those indicators could include the following situations:

  • The existence of direction or compulsion from the State for entities to act in a certain way
  • The existence of transactions at non-market rates between the two entities (other than by way of regulation)
  • The use of shared resources
  • Economically significant transactions between the common controlled entities
  • Common board members between the two entities controlled by the State.

Board members noted that in the majority of situations, the nature of the transaction would trigger the assessment above: essentially, "if it looks odd, it's probably a related party transaction."

The Board agreed that, in the situation in which any of the indicators of a related party transaction exist, the full requirements of IAS 24 paragraph 17 should be complied with.

Definition of related party transaction-clarification

The Board agreed that the definition of a related party transaction, together with a consequential amendment to IAS 24 paragraph 17 were necessary, as follows:

Definition: A related party transactions is a are transfers of resources, services or obligations between related parties an entity and its related parties, regardless of whether a price has been charged.

Amendment to paragraph 17: If there have been transactions between related parities the entity and its related parties, the an entity shall disclose… A Board member raised a concern about the effect of the amendments on transactions between an entity (including its consolidated subsidiaries) and an associate, both in the context of consolidated financial statements and separate financial statements. This topic will be explored further in a later meeting.

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